Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Gorilla

What it is:

A gorilla is a company that controls most of the market for a product or service.

How it works (Example):

For example, in the 1990s, Microsoft was a gorilla in the market for operating systems. Sure, there were  competitors, but they were very small, had tiny market shares, and avoided taking Microsoft on directly. Microsoft had billions to invest in marketing and innovation, and could easily undercut, out-distribute, and outsell these tiny competitors. As the saying goes, an 800-pound gorilla does whatever it wants.

Why it Matters:

A gorilla's huge size means that competitors must carefully consider the gorilla's potential reactions to certain business decisions. Many gorillas have a shot at monopolizing the market. However, federal antitrust laws, most notably the Sherman Act, make collusive activity and monopolistic behavior illegal in the United States. There is, however, still an incentive to compete with a gorilla. After all, an undetected price cut (or increase in production) will attract customers who are buying from the gorilla and customers who are not buying the product at all. Price adjustments may be subtle, including better credit terms, faster delivery or related free services.

Gorillas are most effective when the demand for the gorilla's product is not very affected by price. This is why gorillas are more effective in the short term; over the long term, prices often become elastic as consumers find cheaper substitutes for the product.