203. How do winners take all?

In business, politics, art, and sports, we see that ‘the winner takes all’. The spoils of victory in competition accumulate to the winner and the rest drops out. How does that work?

The general principle is that resources spawn more resources. More in particular, there are four mechanisms.

First, in the science of markets and consumer behaviour there is the notion of contagion. Users already having a product trigger or ‘contaminate’ those who do not yet have it, by showing it off (in ‘conspicuous consumption’), or telling about it. In the process, more users generate more contagion. However, at the same time the number of people not yet contaminated dwindles. Mathematically, this yields an S-shaped curve of the product’s adoption. First, the rate of increase increases, later it declines, and consumption levels off at a saturation level. However, the producer can come up with new models or versions of the product, generating renewed demand.

Second, in economics there is the notion of network externalities, or the ‘telephone effect’. To be useful, a telephone must connect with others with technically compatible telephones. The producer who first introduces a product successfully has an advantage in offering a base of users that increasingly outdistances any newcomers. This generates a race to be the first to enter and build a base of users, to set the snowball rolling. Examples are Microsoft with Windows, Google, Facebook, Twitter, AirB&B, etc. The more faces there are on sight in the Book, the more people want to join that site. Faces evoke faces. An added twist is the flood of advertisers and buyers of data from the system. The more users, the greater the attraction and the need to advertise there. Moving fast breeds moving faster. Like the contagion effect, this may die down as saturation sets in. Again, the trick then is to keep on adding new products or bells and whistles to keep the ball rolling.

Third, in networks there is the phenomenon of preferential attachment. Those nodes of the network (the things connected, such as works, people, firms) that have most connections are the most attractive to connect to. So, having connections breeds connections. Power breeds power. Fame breeds fame. Being connected to the best connected also helps to breed your connections. You don’t want to be caught out not having read the latest bestseller by a best-selling author. For a scientific publication, a high citation score, supposed to be a measure of quality, evokes more citations. Network theory shows, however, that this may also work against the winner, because as he/she gets more crowded with connections, this may also start to hamper him/her and lock him/her into that position, and may produce a basis for the formation of opposition.

Fourth, in cognition there is an accumulation of the ability to learn. The more you know, the higher your absorptive capacity: your ability to absorb what others know. This is partly cognitive, in knowledge, and partly relational, in ability to deal with people with a different outlook. However, here also there is a dampening effect: the more you know, the more difficult it may become to still find someone with something new to offer.  

All four processes show the Matthew effect: the rich get richer and the poor get poorer.

However, there are forms of dampening or saturation. Radically new innovations may melt down the current snowball, contagion peters out, central network positions may get swamped and strangled, existing sources of knowledge may dry up, and radically new knowledge may invalidate the accumulation of the old.