What Is a Winner-Takes-All Market?

A winner-takes-all market refers to an economy in which the best performers are able to capture a very large share of the available rewards, while the remaining competitors are left with very little. The prevalence of winner-takes-all markets widens wealth disparities because a select few are able to capture increasing amounts of income that would otherwise be more widely distributed throughout the population.

Key Takeaways

  • A winner-takes-all market refers to an economic system where competition allows the best performers to rise to the top at the expense of the losers.
  • The ultimate end-result of a winner-takes-all market is an oligopoly, where only a small handful of large, powerful companies control a majority of market share.
  • Stock markets and other zero-sum systems also lead to a winner-takes-all situation where the rich get richer and extends wealth inequality.

Winner-Takes-All Market Definition

Many commentators believe that the prevalence of winner-takes-all markets is expanding as technology lessens the barriers to competition within many fields of commerce. A good example of a winner-takes-all market can be seen in the rise of large multinational firms, such as Wal-Mart. In the past, a wide variety of local stores existed within different geographic regions. Today, however, better transportation, telecommunications, and information technology systems have lifted the constraints to competition. Large firms like Wal-Mart are able to effectively manage vast resources in order to gain an advantage over local competitors and capture a large market share in almost every segment they enter.

The logical outcome to a winner-takes-all market system is one of oligopoly. Oligopoly is a market structure with just a small number of large, powerful firms. In the most extreme case, a monopoly is where just a single firm exists controlling an entire market. These large firms either buy up smaller firms or put them out of business by out-competing them in the marketplace.

Winner-Takes-All in the Stock Market

The meteoric rise of the U.S. equity markets between 2009 and 2019 has led to what some believe is a winner-takes-all market. Wealthy people who have a large percentage of their overall wealth invested in the U.S. equity markets have taken advantage of large market gains during this period which have led to outsized increases in income and wealth when compared to the growth experienced by the rest of the U.S. population. Wealth and income disparity have increased significantly during this period with a large portion of the gains going to those already residing within the top 1% of earners.

This is an example of the "Matthew effect", first described by sociologists in the 1960s. The effect is that in a winner-takes-all situation, the rich get richer and leave the rest behind. That is because stock markets and other winner-takes-all systems are examples of zero-sum games, where winners must get ahead at the expense of the losers. There are alternative systems where an increase in wealth "raises all ships" where there is mutual benefit to gains instead of being zero-sum. Examples include countries with robust social welfare systems such as the Scandinavian countries. The potential downside is that those systems provide less overall potential benefit to winners since wealth is more evenly re-distributed among all.