An important aspect in big companies is that they can do things that small companies can only dream of. On one hand this is good for customers that get services that small companies cannot offer, on the other hand oligopolies are created and the status quo reinforced.

For example you can consider Google App Engine and Windows Azure, cloud computing services, the functionality is very similar, and the pricing is exactly the same. A small company could probably offer similar services, although I haven’t studied the costs, if the competition was harder probably these companies would have the potential to reduce costs much further.

A good example of this is the video games market. Microsoft got into that market not too long ago. With each sale of the first XBox Microsoft would lose a big amount of money, supposedly they would get that money back with games sales, but the balance was negative after the first XBox and then the second was launched, losing $125 for each unit sold after losing $4 billion. For sure competition is good for customers, but only a company like Microsoft can afford to be so competitive. The problem is how far it pushes the other companies and if there’s any room for them. Nintendo, small only in comparison, took a blue ocean approach that worked quite well and it is being followed by the other two big companies in the games industry, in other cases this may not be possible.

This may be the only way to go of small companies, to find a blue ocean and to make it theirs, until big companies get into it. As more and more problems can be faced more and more blue oceans should be reachable, and at the same time, as they are reached and as the reach of big companies grows less blue oceans will remain for small companies.

In any case it is a good reflection, competition is good for customers until it is too hard and very few companies can get into it, then oligopolies naturally emerge and customers lose. When does it become too hard? How can that be determined?