Colton Oliver
Professor Collins
Economics 212
22 April 2018
Netflix—A Waning Powerhouse in a Monopolistically Competitive Market
Netflix started as a movie-rental business by mail to make movie rentals and returns
more convenient for consumers. The founder and CEO, Reed Hastings, saw an opportunity to
solve a problem after he himself was once charged with a $40 late fee for a movie rental. After
discovering that the market which Netflix targeted their service towards was vastly large, the
company innovated its way to become a Fortune 500 powerhouse in the entertainment
industry, offering a subscription-based streaming platform for movies and TV shows. It has
become the world’s leading internet television network, consisting of 125 million streaming
subscribers worldwide, and 56.71 million in the United States (statistica 2018). There are many
factors that contribute to the success and dominance they have established. Many disagree on
which type of market structure the company operates within as they can appear as a
monopoly. I found in my own research that many believe this industry to be both a monopoly
as well as oligopolistic. However, many features of the market’s current state prove that Netflix
operates within a monopolistically competitive market.
While many factors contribute to the dominance and success Netflix has established in
the online movie streaming industry, I would argue that the most significant impact points to
their ability to innovate and creating a category of their own. Al Ries and Jack Trout, authors of
the 22 Immutable Laws of Marketing, argue that a key component to achieving market
dominance is a company’s ability to successfully create a category of their own, making them “the
first” in their industry. They use the computer industry as an example to highlight this principle
which led to the dominance that Netflix enjoys today:
“After IBM became a big success in computers, everybody and his brother jumped into the field.
Burroughs, Control Data, General Electric, Honeywell, NCR, RCA, Sperry. Snow White and the
seven dwarfs, they were called.
Which dwarf grew up to become a worldwide powerhouse, with 126,000 employees and sales of
$14 billion, a company often dubbed ‘the second largest computer company in the world’? None
of them. The most successful computer company of the seventies and eighties, next to IBM, was
