What is a Gorilla
A gorilla is the term used to describe a company that dominates its industry, but one that does not necessarily have a complete monopoly. A gorilla firm achieves its dominance through exerting control over the pricing and availability of its products relative to competitors in the industry. This price control forces competitors to resort to alternative tactics to compete, such as through differentiating their offerings or aggressive marketing tactics.
Breaking Down Gorilla
A gorilla does not need to have an official monopoly within an industry to dominate its competitors; however, its broad dominance in the industry may lead many people to view the situation as a de facto monopoly. The use of the gorilla term is a reference to the fact that an 800-pound gorilla can essentially do whatever it wants.
In business, 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 collusion 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 other free services.
Gorillas are most effective when demand for the gorilla's product is not particularly price sensitive. 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.
Being a gorilla carries with it many benefits. For starters, the gorilla earns much higher margins, which enables them to reinvest in their business at a more rapid rate, further separating themselves from their competitors. Their dominant position provides a larger marketing platform which allows the leader to better set the agenda for what customers should expect from their suppliers. Corporate partners prefer to work with gorillas, which can provide enormous endorsement and distribution benefits. Gorillas are typically able to attract the best job candidates, due to their size and prestige. They are also able to raise money more easily and cheaply than their competitors.
Example of a Gorilla
A modern example of a gorilla is the dominant position Microsoft enjoyed in the 1990s in the computer operating systems market. The competitive companies in this market segment were very small, had tiny market shares, and generally avoided facing Microsoft head on. Microsoft was able to drastically outspend these smaller companies on innovation and marketing, and used that power to squeeze these tiny competitors on price and distribution.