TWO

First Law: Costs and Prices Always Decline

The only source of knowledge is experience.

—ALBERT EINSTEIN

THE FIRST LAW IS POWERFUL. IT EXPLAINS A GOOD DEAL ABOUT the business world, such as why the U.S. steel industry lost so much market share to the Japanese, how Emerson Electric has managed to stay at or near the top of its markets for so many years, why some CEOs regularly claim (and actually seem to believe) that their competitors are colluding or “dumping” goods, how Southwest Airlines makes money in a business that everybody else thinks is one of the worst around, why Polaroid never succeeded in digital photography despite a sizable technological lead, and why your chief competitors may be widening the gap between their companies and ...

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