Thanks again for visiting the site and supporting our blog. Since my last post I’ve been spending a good deal of time learning about patents, what they are how they work and so on. In today’s corporate landscape patents are an invaluable piece of capital that allows most product based businesses to exist and in many ways defines them. Competing companies fight for IP as much and in some cases more than they do for market share. It got me thinking about how companies exist in markets and how it is similar to the way that species exist in ecosystems.
WARNING: This Post contains analogy and conjecture and opinion, proceed with caution.
Markets and ecosystems are closed systems governed by scarcity which incites competition between the players in each. In the biosphere scarcity can result in two different evolutionary trajectories, competitive exclusion or resource partitioning. Competitive exclusion is very much what it sounds like. When two species compete for a resource one is likely to be able to better exploit that resource, it has a competitive advantage. Given enough time the species with the advantage will push the other species to extirpation (local extinction). Over greater geographical areas it is harder for one species to exert total dominance over another species, but locally even small differences in competitive ability can very quickly result in extirpation. Resource partitioning happens when two competing species specialize on a subset of a more general resource to reduce direct competition between species. Warblers are a classic example of partitioning, wherein each species feeds in a specific part of the tree, near to the trunk or the ends of branches, higher or lower in the tree etc.
Resource partitioning allows similar species to exist in the same geographical area. Competitive advantages are exerted in both cases, in competitive exclusion a species exerts its advantage in a specific area, whereas in resource partitioning a species exerts its competitive advantage over a subset of a given resource type e.g. all possible food sources.
Similarly, we see competitive exclusion and resource partitioning in the market place. Direct competitors can exert dominance over a geographical region, grocery stores are a good example. Essentially identical in the products and services they offer, grocery store chains tend to be highly regional. The chains in northern California are different from those in southern California, and completely unrelated to those in northeast Ohio. (for the purpose of analogy I am ignoring the fact that many grocery chains are part of larger parent companies).
The longboard (skateboard) market is a good example of resource partitioning. Being sold largely online, longboards are not as restricted geographically. Despite the level geographic playing field, the longboard market is incredibly diverse. Board makers use functional differences to subdivide the market. Even boards designed for similar purposes, e.g. downhill longboarding, will have different feels that appeal to different riders.
Companies leverage competitive advantages in the market place to carve out for themselves a share of the market, hopefully one large enough to keep them in business. Competitive advantage can take many forms: brand loyalty/recognition, local dominance, means of production, but in many cases, especially in companies invested in innovation, intellectual property is the most important form of competitive advantage to be obtained and leveraged. Patents allow their holders to block anyone from making using or selling their invention without proper licensing. This power makes it fairly easy to see how patents contribute to competitive exclusion, but how could a patent facilitate resource partitioning? Very basic patents that cover the essential features of an invention are very valuable in that they allow the holder to control the market surrounding the invention. However, a patent is granted for a single innovation, new innovations surrounding the patent create new opportunities for patents to be obtained, which can and are often obtained by competitors. These peripheral patents give their holders leverage in the market despite the dominance of the original patent. This creates a situation similar to a phenomenon we see in nature regarding the disparity between fundamental and realized niche. A fundamental niche is the ecological space a species would occupy given no competition. Its realized niche is the ecological space it actually occupies in the presence of a competitor. In the corporate sphere a company’s fundamental niche would be the base innovation and all the variations and innovations derived from it. But peripheral patents held by competitors limit the dominance a company has over the market.
The key area where companies differ from most organisms is the ability to transfer competitive advantage between companies. Patents can be assigned or licensed to other parties. Companies buy out others, absorbing not only their patents but also their market shares. In general, this horizontal transfer is not possible in the animal kingdom. I say “most organisms” because bacteria are notorious for horizontal gene transfer. This is the primary reason why antibiotic resistance is increasingly becoming an issue and is why bacterial phylogenetic trees look more like bushes.
Obviously, this whole system is more complex than I can capture in a single blog post, with nuance and exceptions to rules on both sides of the analogy. I think however, this conversation about the similarities between ecosystems and markets can help us understand what we value in our current market system, what things we think could be better, and how we might be inspired to change by the way ecosystems organize themselves. I’d encourage you all to continue exploring some of these relationships and questions that arise in the comments.