Rule of Three

Rule of Three

Rule of Three Jonathan Poland

The rule of three is an economic theory that posits that large, mature markets tend to be dominated by three major competitors. This theory suggests that in an industry with many competitors, there will be a process of consolidation through mergers, acquisitions, and other shakeouts, which will result in the emergence of three dominant firms.

According to the rule of three, a firm that dominates an industry with few competitors may become vulnerable to new competition. This is because large, dominant firms often become less responsive to customer needs and less innovative, creating opportunities for other firms to enter the market and challenge their dominance.

In general, the rule of three suggests that markets tend to evolve towards a state of equilibrium with three dominant players, each vying for a share of the market. These three firms may be able to sustain their positions through economies of scale, strong brand recognition, and other advantages. However, the rule of three does not dictate that these three firms will remain dominant indefinitely, as market conditions and technological advances can disrupt the status quo and create new opportunities for other firms to emerge as leaders.

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