Imagine a parallel universe where the more competition there is, the better dominant players perform. Where the more competitors there are, the longer incumbents stay on top.
This is exactly what a new research paper concludes: increased competition entrenches the advantages of dominant firms. Johan Chua, Assistant Professor of Organisations and Strategy at the Chicago Booth School of Business conducted a series of simulations to show that – counter to what economic theory assumes – new players entering a market make life easier for dominants.
Why? Faced with too much choice people “default to largest most well-known providers.”
Whilst the paper relies on mathematical modelling, at its heart this is a story about psychology, not economics – our brains rather than our wallets.
Abundant information imposes a cognitive burden
Too much choice weighs us down: we end up taking mental shortcuts because thinking and deciding takes up a huge amount of energy.
Relying on known brands ends up being a pretty good solution if there’s loads of choice – you’re pretty much guaranteed a minimum level of quality.
Abundant information means cognitive biases are amplified
When we are overloaded with information it hampers our decision making and magnifies our cognitive biases.
For example we might focus on items that are more prominently displayed and be swayed by information which confirms our preconceptions. It might not feel like it at the time but we’re pushed into coping strategies which limit our decisions.
This applies to domains like entertainment too.
“As options multiply, choosing gets harder. You can’t possibly evaluate everything, so you start relying on cues like “this movie has Tom Hanks in it” or “I liked Red Dead Redemption, so I’ll probably like Red Dead Redemption II,” which makes you less and less likely to pick something unfamiliar.”
I for one spend more time on the Netflix menu than watching Netflix. When “…six of the top seven films in 2021 were part of the Marvel Cinematic Universe, and the top nine films were in franchises” I know I’m not the only one finding it hard to choose a movie.
Some are jaded before they’ve even started
As one consumer put it to me recently: “Just the thought of searching for car insurance makes me feel exhausted.”
Let’s face it, the internet brings unwanted complexity to categories that don’t need it. Who benefits from getting 429 results when you search for a tin opener on Amazon? Probably not the buyer.
Our observational research shows buyers quickly develop shortcuts. Whilst this varies by category – a strategy of opting for the cheapest, a known brand or requiring a minimum number of reviews helps cut down the complexity.
Information overload means we need curation more than ever
If information overload is the problem then curation – relying on the judgement and taste of the informed to cut through complexity – is one answer. People are willing to pay for guidance, honed through experience, on what’s important and what’s not. Daniel Levitin, author of the Organised Mind puts it succinctly:
“Successful people— or people who can afford it— employ layers of people whose job it is to narrow the attentional filter. That is, corporate heads, political leaders, spoiled movie stars, and others whose time and attention are especially valuable have a staff of people around them who are effectively extensions of their own brains, replicating and refining the functions of the prefrontal cortex’s attentional filter.
For us mere mortals, this is more likely to mean a substack subscription from an informed insider, a pared down Twitter feed or just some trusted peers to help us along the way.
Who knows, maybe generative AI will develop into a digital concierge to smooth our paths. One thing’s for sure. The information age has created tension between accessibility and illumination, and we could all do with a little help.