Commoditization

Captures Munger’s point that many wonderful new inventions and “great improvements” give the owners of a business nothing — the advantages flow through to customers (or competitors) rather than to the owners, because the gains are competed away. A lousy business stays lousy even after the improvement; the money still doesn’t come to you.

Context: Commoditization is the process by which goods or services become indistinguishable from competitors’, so that they compete almost entirely on price and producers capture little of the value they create — a recurring hazard in capital allocation and investing.

Where this appears

• Charlie Munger — A Lesson on Elementary Worldly Wisdom — “all of the advantages from great improvements” flow to others, not the owners of a still-lousy business.