Practical Implications of Pareto, Rule of Three, Winner Take All

Any market researcher, studying any particular market, will tend to find something like a Pareto distribution often applies: up to 80 percent of results are produced by 20 percent of actors. Some might call that the rule of three. 

Market share structures in computing, connectivity and software tend to be fairly similar: leadership by three firms, corresponding to the rule of three. 

“A stable competitive market never has more than three significant competitors, the largest of which has no more than four times the market share of the smallest,” BCG founder Bruce Henderson said in 1976.  

Codified as the rule of three, the observations explains the stable competitive market structure that develops over time, in many industries. 

Others might call this winner take all economics.  

Consider market shares and installed base in the U.S. home broadband market (including small business accounts). Of a possible total installed base of 122 million locations, 90 percent of the installed base is held by 15 companies. 

Just two firms have 52 percent of the installed base of accounts. 

Broadband Providers	Subscribers at end of 2022	Net Adds in 2022
Cable Companies
Comcast	32,151,000	250,000
Charter	30,433,000	344,000
Cox*	5,560,000	30,000
Altice	4,282,900	-103,300
Mediacom*	1,468,000	5,000
Cable One**	1,060,400	14,400
Breezeline**	693,781	-22,997
Total Top Cable	75,649,081	517,103
Wireline Phone Companies
AT&T	15,386,000	-118,000
Verizon	7,484,000	119,000
Lumen^	3,037,000	-253,000
Frontier	2,839,000	40,000
Windstream*	1,175,000	10,300
TDS	510,000	19,700
Consolidated	367,458	724
Total Top Wireline Phone	30,798,458	-181,276
Fixed Wireless Services
T-Mobile	2,646,000	2,000,000
Verizon	1,452,000	1,171,000
Total Top Fixed Wireless	4,098,000	3,171,000
Total Top Broadband	110,545,539	3,506,827
source: Leichtman Research Group

The point is that when tracking market developments, the big broad trends are discernible from understanding the actions, strategies and results of a mere handful of firms. And while the full range of “big company” strategies, opportunities and actions can vary substantially from those of perhaps hundreds to thousands of small firms, the trends that move the needle financially typically can be gleaned from following just a relative handful of firms. 

In other words, the business “laws of motion” are dictated by a relative handful of actors, even in markets with thousands of contestants. 

That might seem unimportant. For market analysts, it is a foundational assumption.