We Are Living in a Monopoly Moment
Think about this: in just about any given market sector you’ll end up finding that only three companies dominate. In aviation, United…
Think about this: in just about any given market sector you’ll end up finding that only three companies dominate. In aviation: United, Delta and American Airlines control about 70% of the market share. The remaining 30% is held by all the other carriers. In telecom: AT&T, Sprint/T-Mobile, and Verizon control almost 100% of the market! I can go on … ok I will:
High-end retail: Nordstrom, Bloomingdale’s, and Saks Fifth
In personal computing: Lenovo (formerly IBM), HP, and Dell
Burger fast-food: McDonalds, Burger King, and Wendy’s
Soft-drinks (and water): Coca-Cola, PepsiCo and Dr. Pepper
Social media: Facebook/Instagram/WhatsApp (yes its all one company), Twitter, and Snapchat
Pay-TV television: AT&T, Comcast, Charter Communications
Online retail: Amazon (50%!), Ebay and Apple
I call this the “Rule of Three”
Companies like AT&T hold dominant market share in multiple industries, like television and telecommunications.
These tripartite arrangements are a specialized form of monopolies referred to as oligopolies. Unlike monopolies where one company dominates a market, an oligopoly consists of a handful of companies (usually three) that end up having a significant influence on an industry. Unlike past U.S. monopolies like AT&T or Standard Oil, today’s oligopolies present a more nefarious threat to the integrity of American communities because they:
Are broad in scope. As evident from the list above, oligopoly structures infest almost of all of corporate America. Everywhere you look, out pops an oligopoly.
Pretend to be competitive. Unlike monopolies which provide antitrust regulators with a single, easy target — by collaborating tacitly or overtly with each other to set prices and control markets — oligopolies take on the veneer of a competitive marketplace. Gone are the days when you could found an upstart like Southwest Airlines. Today the barriers to entry in the airline industry mean no one is starting a mainstream airline anytime soon (and no one has in over a decade). This is despite the attractive profit margins in the airline industry, which at 7.5% are double the worldwide average. With no incoming competition, airline fares are kept higher, routes are kept at a minimum to lower costs, wages of airline workers stagnate and every time you fly you hear about how “this flight is full” and why you should pay the airline even more money for a seat or overhead bin space that used to be free a decade ago. In a truly competitive marketplace, these kinds of policies would encourage the growth of a disruptive rival that could tout convenience or flat fares as a selling point. Though Uber and Lyft present some exceptions to this rule, they disrupt relatively small, decentralized industries (taxicabs).
Grow without improvement. Without competition, the only way to grow is to keep buying smaller rivals, increase prices or charge more for the same products (hello $1000 iPhone). Consumers aren’t getting better products … just the same stuff at a higher price.
Why is this important?
As companies merge (Comcast bought Time Warner, T-Mobile is buying Sprint) they have little incentive to remain competitive. In fact, they are incentivized to raise prices as high as possible to pay for the cost of a merger or to deliver even higher returns to shareholders. The highly consolidated American high-speed internet industry provides the clearest example of this trend: In 2014 Americans were already paying more than double what European consumers paid for high-speed broadband internet. This number has only risen in the past five years.
It’s not just consumers who lose out, but also vendors that sell goods to these companies and the employees who work there. Apple, Wal-Mart, Amazon and other dominant companies have been known to continually suppress wages of workers well-below normalized market rates and pay their vendors and suppliers as little as possible. The money they save remains idle or generates dividends for the company’s shareholders. For instance, Apple is currently sitting on $240 billion dollars of cash, not including other assets like inventory, land etc. … just cash … $240 billion of it! If Apple were a country, it would be one of the 50 wealthiest nations in the world based on cash reserves alone.
The effects of consolidation and diminishing competition filter down to the community level. Workers make less and the products they wish to purchase with their diminishing wages cost more. It’s a vicious cycle. Low wages force employees to work longer or take up second jobs (Americans already work more than counterparts in any other industrialized nation). Ultimately this means less time spent on healthy activities, less attention paid to raising children, and less cognitive bandwidth devoted to civic activities like making informed voting choices.
Originally published at http://www.ehsan.com on March 2, 2019.