The benefit of technology competition

Many companies are competing in terms of technology, they invest tones of money into technology development. Why is technology competition so appealing? I did give some of my answers yesterday and I would like to add more explanation. Technology competition is uncertain and we can see companies in similar fields can end up with various results from their investment in technology. Sometimes there may be a clear winner, sometimes there is not a clear winner and all technology development has its place in the market. When there is a clear winner, it does not mean other companies will lose the market, as long as they have some certain degree of technology development capacity, they can deliver something similar to the winner and still get some market share. If there is no clear winner, then it is great for all companies as they can differentiate some products and avoid direct competition with other players in the market.

Moreover, once companies start technology competition, no companies want to go back to price competition. The fields where technology competition is more common are the fields where technology develops at a very fast rate, such as the smartphone market. Price competition may help a company win the competition for a very short period, but once there is a new technology breakthrough, this company will immediately lose the market because it does not have the technology its consumers want. Therefore, companies in these sectors will automatically prevent itself from entering a price competition. Once no company is interested in price competition, they will set prices for their products which can generate some profits. In addition, not all consumers need the latest technology, companies can generate even more profits from price discrimination.

Even more importantly, technology development can help companies to accumulate market power by building up technology barriers. Rome wasn't built in a day, so is technology. A technology company can maintain its dominant position in the market because of the technology held in its hands. Some technology companies has spent years on technology development, the experience and knowledge it has do not only help to produce its current products, but also helps to speed up future technology development. Incumbents can sell their technology to newcomers, this will further strengthen their market power. Under such circumstance, maybe the market becomes more competitive, but the large players will always win since other firms are paying for using their technology. For example, Samsung is a big smartphone player, but it also provides display panels for many other smartphone makers.

Overall, technology competition is the new fashion. Such competition may not help consumers to save their money, but will definitely deliver better products for their consumers. To some degree, I feel technology competition will benefit richer consumers than poorer consumers, since richer consumers are more likely to afford more high tech products and enjoy the benefits brought by technology competition while poorer consumers are less likely to own many high tech products and they appreciate price competition more than technology competition.