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Actually that's one of the big things people misunderstand about capitalism - it doesn't have to be competitive. Capitalism can, and does and wants to thrive in a monopoly. Capitalism and free markets are two different things and the latter is far more important though they are often conflated.

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At least the Wikipedia article names competitive markets as central aspect of capitalism. I agree with your sentiment though. Companies are basically little bubbles of monopoly in a sea of free markets. But the optimal state for a company (and the owning capitalist) is no competition at all.

I think that's a really efficient way to find a local maxima. In my opinion, companies need competition to drive continued innovation.

Most companies aren't otimizing for innovations, they're optimizing for profits. If they desire innovation it's primary purpose is profit.

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