How Oligopolies Undermined Competitiveness and Produced Inequality

Economists, commentators, and policymakers have spilled boatloads of ink on what caused the financial crisis and why the US and most advanced economies remain mired in a weak recovery. A substantial school of thought sees stagnant wage rates, financialization, and rising inequality as linked causes. Starting in the 1970s, the old bargain between large corporations, which tended to anchor wages, and labor began to break down. Before, workers shared in the benefits of productivity gains, which enabled them to enjoy a rising standard of living. Economic policy also focused on the health of labor, measured in wage and employment levels.

While the shift in emphasis started in the 1970s, the new “free market” economic paradigm really took hold in the 1980s. Markets were touted as the neutral arbiters of economic problem, regulations were depicted as a drag on this virtuous device. That belief served to justify widespread deregulation. Stagnant worker wages were papered over by rising levels of consumer debt and asset prices, which allowed ordinary citizens for decades to use borrowing to augment flagging incomes and thus provide for rising living standards (another prop was much greater participation by women in the economy, so more and more two-earner households also masked the flat trend in real wages). Increased financialization, as well as lower tax rates on top earners (and the failure to close critical loopholes), helped promote widening inequality. And that now much greater disparity between the 1%, and particularly the 0.1%, and everyone else, has dampened the recovery, since the wealthiest don’t consume as much of their income as low and middle income people do, so the high degree of wealth concentration perpetuates post-crisis weak aggregate demand.

Now notice what is missing from this account: the role of anti-trust policy. One thing that even conservative economists will concede is that monopolies and oligopolies undermine the tidy “markets are virtuous” account. Monopolies and oligopolies have the power to set prices unnaturally high, assuring more profits for themselves. Yet the highly efficient markets of economic fairy tales, where no producer or buyer has pricing power, is a highly unattractive setting for businessmen. Efficient markets produce minimal profits. Indeed, rampant competition is destructive to businesses, as railroad speculation and bankruptcies in America in the 1800s demonstrated.

The job of an entrepreneur is to find or create market inefficiencies. That might be the virtuous way, by creating a distinctive product that is hard to replicate (think the iPhone). It might be by exploiting a niche market (think the convenience store that charges high prices but can get away with it by being open 24 hours or by being in an underserved location). Or it might be by trying to become a dominant player in a market that has some barriers to entry (say scale economies or network effects).

The US knows, or should know, how this movie plays out. The Gilded Age era of consolidation, which came to be described as Morganization (for JP Morgan) was one of combining businesses into trust to gain market power. But the result, as Morgan’s US Steel showed, was uncompetitive, high cost producers that under-invested in innovation and even in upgrading the caliber of management (Alfred Chandler described US Steel’s failure to adopt management structures appropriate for an enterprise of its scale).

A lnot-widely-noticed, but nevertheless important element of the new economic paradigm that emerged in the 1970s and 1980s was less and less enforcement of anti-trust laws. When I was young and involved in acquisitions, large corporations worried about having a deal nixed on anti-trust grounds. Now that sort of event is so rare as to be noteworthy when it does take place.

Weak anti-trust enforcement has played a direct role in the restructuring of American business and the unprecedentedly high profit share of GDP that US corporations now enjoy. For instance, a popular strategy among private equity firms is what are called rollups, meaning industry consolidations. And when a small number of players come to dominate an industry, crapification often results. For instance, in his excellent book The Buyout of America, Josh Kosman describes how the two biggest mattress makers, Sealy and Simmons, each owned by private equity firms, kept raising prices by twice the rate in the general economy from 1998 to 2006, while cheapening the top of the mattress and moving the industry to “no flip” beds, which were less durable. That paved the way for the success of foam beds by makers like Tempu-Pedic. Simmons filed for bankruptcy in 2009.

In an important Washington Post op-ed earlier this week, Lina Khan, a policy analyst for the New America Foundation and Sandeep Vaheesan, special counsel at the American Antitrust Institute, describe how lax antitrust enforcement made the US less competitive and more unequal. From their article:

Take the $2.5 trillion health-care industry, where rising costs are fueled in good part by consolidation. A frenzy of mergers starting in the 1990s has meant that most Americans today live in areas where there is little competition among hospitals. Studies show that after merging, hospitals routinely raise prices. As detailed in Time last year, many hospitals now mark up services from a routine blood test to chemotherapy by as much as several hundred percent. In health care alone, market power redistributes hundreds of billions of dollars in wealth upward annually.

The same is true in other sectors. Meager competition among cable providers and the growing market power of large content owners have enabled Comcast, Time Warner Cable and others to raise the price of subscriptions at close to three times the rate of inflation since 2008. High-speed broadband presents a similar picture: Americans now pay more than double what European consumers pay. Merger mania in the airline industry — where eight majors have combined to create four giant carriers over the past decade — has resulted in fare increases of as much as 65 percent on certain routes.

And although the place where oligopolies usually throw their weight around is with pricing to customers, they also can exert pricing power with suppliers. Khan and Vaheesan describe the now-notorious wage-suppression pact among Apple, Google, Pixar, Intel, and Adobe. That sort of price collusion is a flat-out antitrust violation. But there are softer forms that have become depressingly normal. For instance, I’ve mentioned how Wal-Mart seeks to become a big supplier at its mid-sized and smaller vendors. Once the Bentonville giant becomes 40% or more of a company’s revenues, it knows it can exploit its leverage. One of my attorneys heard repeatedly of how Wal-Mart would keep demanding lower and lower prices from its vendors, unconcerned as to whether it drove them out of business (which it too often did). The authors describe similar practices in the poultry business:

In agriculture, meanwhile, consolidation among meat processors has left many farmers subject to the whims of individual companies, enabling firms such as Tyson to cut what they pay farmers and raise their own profit margins. The average price a farmer could fetch per hog dropped 31 percent between 1989 and 2008, for example, a period when the top four pork producers increased their national market share from around 45 percent to 63 percent.

Khan and Vaheesan also point to the fall in the number of new businesses that create jobs (as opposed to merely employ the principals) fell by 53% from 1977 to 2010 relative to the working age population. They argue that concentrated power of entrenched businesses plays a role. They also highlight the dearth of decent academic work in this area, which has the convenient effect of keeping it off the policy agenda.

The authors describe how some fairly simple policy measures would reverse these adverse developments:

We can restore a more fair and competitive economy. To do so, we must realize, first, that intense concentration across our markets contributes to inequality. Second, we must recognize that we have the right to use laws to neutralize the power of these corporate giants. Americans in the Gilded Age freed themselves from the clutches of Standard Oil and the railroads because they knew that markets and economic outcomes were theirs to shape. Today, by contrast, we frequently surrender this power by assuming that inequality is a result of impersonal forces — technology, globalization — to be tracked and studied by technocrats, rather than a condition we can change through popular will and political action.

But first the public has to recognize that market concentration is a problem that affects them broadly, and not just in obvious cases like their cable bill. Hopefully as concerns about inequality and plutocracy rise, we’ll see better forensics on the causes.

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  1. Carolinian

    Not for nothing is the quintessential board game about capitalism named Monopoly. I have long thought that the dirty little secret about big business–those critics of government–is that they want to be more like government. Which is to say they want a supply of captive customers legally required to pay for their products.

    Just with regard to Wal-Mart, you might broaden that to include Wal-Mart’s online mirror image: Amazon. The book The Everything Store talks about Bezos’ admiration for Walton and Wal-Mart and his close study of their business practices.

    That said, while Wal-Mart, and Amazon, have considerable market power it seems to me that retail is one of the last segments of American business that does have significant competition. Wal-Mart has lots of competitors in its low cost segment and they would step in should it fail. And while Wal-Mart is unlikely to be going anywhere many say Amazon, with its small profit margins, is on thin ice.

    As for bringing back anti-trust, good luck with that. How’s that working out with the banks?

    1. Yves Smith Post author

      We have actually had anti-trust suits that were successful in banking products where the incumbents are concentrated enough to have pricing power. American Express won a multibillion dollar suit against Visa and Mastercard a few years back. As much as JP Morgan is a dubious actor, it does not have enough market share to dictate pricing in deposits, for instance. What is troubling, though, is the way banks collude on the pricing of payment services like debit and credit cards, which is again a function of the Visa/Mastercard networks, and not the position of any one bank per se.

  2. Ed

    Its remarkable during my lifetime how much the US got into the corporatist cycle (lots of monopolies created by government contracts and regulation, and the companies that benefit from this in turn control the government).

    1. Yves Smith Post author

      I suggest you re-read the post.

      The driver of the increase in industry concentration has been deregulation, in the form of little to no antitrust enforcement.

      1. Whine Country

        I think Ed meant to place regulation in quotes. Deregulation is the favored form of regulation these days whether de facto or de jure! With respect to his comment about government contracts, did you happen to see the interview with Pierre Sprey a former F-16 designer who is very critical of the F-35 fiasco? He states with total clarity that the only reason for the existence of the program is to funnel money from the government to Lockheed, the sole source (monopoly?) designer of this money pit.

        1. fresno dan

          Also, trademarks, patents, and copyright have been extended far, far beyond any rational amount to protect the creativity of the writer or inventor. Walt Disney is dead yet mickey mouse still has IP from Disney – that is just ridiculous.

      2. MtnLife

        While most of it is deregulation, sometimes the regulations they do impose only serve to protect the established players in an industry by creating enormous barriers to entry.

      3. Alejandro

        What I find very interesting is how concepts and definitions of concepts, e.g., “trade” and “markets”, influence court decisions. By the time the “supremies” were debating whether Standard Oil was restraining “trade” “unduly” or “directly”, 21 years after the Sherman Act, they pretty much ‘owned’ the industry. Did it really matter if an empire is 34 divisions of a mega-corp or 34 “baby Standards”?
        Also worth noting is how “markets” and “trade” were defined at the time of Sherman and how “sages?” like Alan Greenspan peddled a re-shaping of how we ‘think’ about then.

        1. Yves Smith Post author

          This is the result of a persistent effort by right wing efforts to undermine the very foundations of the law, which heretofore was based on notions like equity. Google “law and economics movement”. You’ll see I’m not exaggerating. I covered it briefly in ECONNED.

  3. John

    Unfortunately broken government aids and abets the oligopolies.

    The synergy is hard to break because the oligarchs (billionaires) have done a great job at keeping the country divided. They do this by buying up politicians and the courts on the cheap.

  4. Klassy

    Glad the issue of hospital consolidations is raised because I have wondered why these aren’t subject to anti trust actions. The answer seems to be “they just aren’t.”

  5. weinerdog43

    Sort of OT, but I was cleaning out my closet the other day and came across 2 Howard Dean signs when he had been running actively for President. While the campaign might not have been ready for prime time, his candidacy was pure populism and it was energizing. The Democratic base was ready to embrace someone who was at least espousing the view that we as citizens have the right to be heard. That group of people have not gone away, but have been mightily disappointed by Mr. Obama. Hillary appears to be more of the same. On the elephant side, you have a bunch of demagogues and corporate suckups. Very depressing. We’re looking for a Roosevelt (either one), but all we see are Hardings and Buchanans. The Supreme Court is hopeless and congressional approval ratings hover around STD levels. I’m actually worried that eventually some ‘strongman’ will appear very much in the guise of a Hitler. The Germans elected him and there is nothing that says we are any smarter than they were. We have to tackle these corporate titans and I just don’t see anyone actually campaigning on that issue. Rant over; back to work.

    1. Vatch

      What you say makes a lot of sense, but I have one small correction. The Germans didn’t put Hitler in power by electing him in 1933; rather, he was appointed Chancellor by Paul von Hindenburg. The Germans elected many Nazis in various elections in 1932 and early 1933, and the Nazis got the most votes, but they never got a clear majority until after they had been in power for the better part of a year. For more information, see:,_November_1932

      1. Generalfeldmarschall von Hindenburg

        It was that fool, Papen! I never would have let that Bohemian corporal anywhere near the Chancellery if it hadn’t been for him. Plus senility.

  6. cnchal

    The driver of the increase in industry concentration has been deregulation, in the form of little to no antitrust enforcement.

    Little to no antitrust enforcement has led straight to little or no enforcement of other laws, particularly laws to do with the financial sector. The constantly steepening slippery slope.

    Industry consolidation is used to buy competitors and very often, close them, but that has been known for decades.

    To reverse this requires politicians that will do the right thing, but they are funded by, to use G W Bush’s expression, “evil doers”. Hell, most politicians are outright “evil doers” themselves.

  7. Stratos

    While I agree with the main points of this article, I was struck by the closing statement, “But first the public has to recognize that market concentration is a problem that affects them broadly….” Americans of all economic and educational backgrounds all seem unable to recognize the fact that we no longer live in a democracy. If I had a dollar for everytime I’ve heard or read phrases like, “threatens our democracy”, “we’re on the slippery slope” (or my personal favorite), “creeping authoritarianism”, I would be a member of the vaunted One Percent.

    It seems that Americans will have to first come to grips that we live in a totalitarian society and that the Rubicon of Plutocracy was crossed when Clinton built steel pontoons across the river for plutocrats with his nullification of the Glass-Steagal Act among other things. Then and only then, will Americans understand what they are up against and how to organize themselves. Of course, by then the cost of regaining a true democracy will be frightfully high….

    1. RUKidding

      Spot on! It’s very frustrating because we are THERE right NOW. This is pretty much a fascist dictatorship. Oh at this point, we still have this pretend electoral system, but really choose 1 from Column A or 1 Column B for US Pres, and really what’s the diff? Maybe a teeny bit in terms of some marginal social issues, and that’s about the end of it. And whoever runs for POTUS and/or Congress is pretty much already hand-picked and paid for by the Oligarchs, all confident that whomever wins will do *their* bidding. They don’t really care if someone has a “D” or an “R” beside their name. What difference does it make?

      Rightwing or leftwing, it’s really hard to awaken citizens to our present reality because they simply do not want to SEE it and acknowledge the very hard work involved in making substantive changes. I guess that’s why so many citizens remain asleep and cling to their paltry belief that one “party” or the other is “better,” that the likes of creeps like Obama are “really really good guys with good intentions.”

      Those who continue to worship the Clintons are the worst, in my book. I never liked Clinton & saw him for the sell out he was long ago. But I still have friends who defend every little thing Clinton did, and I’m sure they’re lining up now to vote for Hillary- I’ll make the Medici’s look benign – Clinton.

      One friend of mine who sees reality says: it’s impossible to wake people up; it’s every “man” for themselves. Good luck to us all.

    2. Bosto

      Clinton’s repeal of Glass-Steagall is emerging as the cornerstone of world economic collapse. Yet last week a poll was released showing that Clinton was regarded as the country’s most admired president of the past 25 years by better than a 2 to 1 margin. Any hope of getting Americans to understand anything anymore let alone organizing themselves for what they’re up against is surely gone.

      1. Yves Smith Post author

        Um, no.

        The repeal of Glass Steagall had just about no impact save for allowing Travelers to acquire Citigroup.

        Glass Steagall had already been so weakened that banks were already deeply involved in investment banking services long before that. Look, Credit Suisse, a bank, acquired First Boston, an investment bank (and one of the really big ones too), in 1988 (no typo).

        1. Propertius

          And I think referring to it as “Clinton’s repeal” is somewhat disingenuous, given that Gramm-Leach-Bliley passed the House 362–57 and the Senate 90–8. Clinton didn’t write it, he didn’t sponsor it, and if he had vetoed it as some sort of grand gesture (which I truly wish he had) it would have been overridden the very next day.

          1. Jacob

            True, Clinton didn’t create the bill that repealed the Glass-Steagall Act. The bill was created by Senators Gramm, Leach and Bliley, all Republicans and all were working for Sanford Weill, the head of Citi at that time. His bank was already violating Glass-Steagall by gambling in the stock market with depositors’ money, and the Gramm-Leach-Bliley Act repealed Glass-Steagall in order to enable Weill’s bank to avoid prosecution. The Gramm-Leach-Bliley bill required Clinton’s signature because it was approved by the majority of Congress and was therefore veto-proof.

    3. Albert Leo

      I don’t think Clinton was the prime mover in this regard. He was so anxious for approval that he bought into the elite’s definition of success, leading to repeal of Glass-Spiegel and implementation of NAFTA. They used his emotional insecurity and desire to be “liked” to railroad their agenda through the body of the American public. Bill Clinton is just a little boy who wants to be popular. Those with more serious agendas were happy to feed his ego in exchange for more tangible returns.

      1. Stratos

        I learned a bit more about Glass-Steagall (including proper spelling) and Clinton in this thread. Thanks, everyone!

  8. flora

    Yves, this is an important topic. Spot on. The current crop of politicians show little interest in changing a system that “appears” to be working. Times change. Your post is an important marker.. A couple of Ding Darling (editorial cartoonist DesMoines Register 20s-40’s) from early in 1929 are below. I think something happened late in 1929.
    ( may need to drag your cursor across the upper left thumbnail to see the entire cartoon)

  9. Generalfeldmarschall von Hindenburg

    The whole system seems incredibly ossified. Revolutions generally start from some dissatisfied elite faction, which is what the NSA spends its time collecting blackmail to prevent.

  10. Anon

    ” One thing that even conservative economists will concede is that monopolies and oligopolies undermine the tidy “markets are virtuous” account. ”

    Clear evidence that you have not read The Antitrust Paradox. Of course, Bork was a lawyer, not an economist, but his specious arguments (firms growing big is evidence that there are efficiencies — e.g. of scale — to big firms) played a huge role in the policy change — and the active promotion by conservatives of oligopoly instead of competition.

  11. Another Gordon

    The neoclassical view that markets trend towards an equilibrium mediated by price acting on supply and demand is, of course, utter nonsense; it’s actually mediated by the relative POWER of the participants. Supply and demand are factors in that but not dominant ones if powerful firms get their way.

    Also the conventional view that supply curves are upward sloping is wrong; in reality they usually slope down – that what economies of scale means – so the usual rule is that the winner takes all. This subtle but actually rather obvious dishonesty by the theoclassical establishment enables TBTB to pretend that no or minimal regulation is optimal.

    If real competition is to be preserved some sort of regulation, either direct (e.g. limits on market share) or indirect (e.g. restrictions on trading practices that effectively limits market share) is necessary. It’s surely significant that one of Reagan’s first acts on becoming President was to direct the Commerce Department not to initiate any new actions under the Robinson-Patman Act.

    1. gordon

      You might be interested in the list of ten conditions which Prof. DeLong recently suggested as necessary for modern neoclassical economics to work:

      “If real competition is to be preserved some sort of regulation, either direct (e.g. limits on market share) or indirect (e.g. restrictions on trading practices that effectively limits market share) is necessary”.

      The attempt to recapture a lost competitiveness in the economy always looks to me like an attempt to recapture lost virginity. It isn’t going to happen. Trying to use some set of regulations to create a situation where the economy functions “as if” it is competitive is IMHO equally futile. However it may be possible to construct a regulatory environment in which oligopoly does less damage than it otherwise would. That means recognising oligopoly, not trying to reverse it (impossible), and not trying to create an “as if” situation. I can’t propose such a set of regulations in full, but I suggest, as a starting point, wage regulation such that oligopolies can’t force wages down without violating the rules. That would go way past having a minimum wage – it would involve, I think, legislated wage compression and wage minimums for quite a variety of actual job types.

      1. gordon

        I forgot to mention the necessity for large parts of such an economy to be government enterprise – things like public goods. You can make your own list. And environmental regulation too.

        Sorry about the omission, but I needed a coffee!

      2. Another Gordon

        I agree. I didn’t mean my earlier comment to imply I thought either that a ‘perfect’ market could be created or even that it would be desirable so to do. But I do think that it’s achievable to curtain the worst excesses of oligopoly. And let’s not forget outright fraud; I remain amazed that governments seem to have such a tolerance for abusive practices – for instance using limited liability (in its original inception an excellent idea) as a way of hiding wealth or shielding perpetrators against the consequences of their actions. Of course not all legislators have clean hands so perhaps that’s partly why they are so blind.

  12. impermanence

    Seems to me that the question that needs asking/answering is, “Why have those in administrative positions throughout the economy [the professional class] simply allowed the system to go to Hell?” Here, you will find the reasons why all the non-sense is going on [in every decayed institution].

    Problem is, people never like the answers they find, and therefore remain in denial.

  13. kevinearick

    Technology is War

    The passive until aggressives are always at war, establishing the rules of war, civil law, fighting over surplus, creating little monsters ‘breaking’ the law, to serve as scapegoats, to proliferate more laws. The Internet is simply being deployed to take the MAD process global, with mechanical robots to serve human robots.

    Legacy controls the boundaries, under civil FILO, feeding the following critters debt, to fight more wars for increasingly scarce resources, giving legacy more control over borders. Oil is not required to run an economy, never has been. The Internet is not required to run an economy. They are control mechanisms, layer upon layer upon layer.

    The Internet is a weapon. Food is a weapon. Occupying Iraq to keep oil of the market is a weapon. Everything the critters touch becomes a weapon, because artificially scarce resources is the only possible outcome of organizing to consume surplus. Of course the critters see labor and land as commodities.

    Homeland Security is embedded at the root, and you are the leaf. To communicate to the leaf next door, you must transmit back to the root and all the way back again, through layer upon layer of middlemen.

    The programmers can’t copy code fast enough, the engineers can’t make hardware small enough, and the certified technicians can’t replace proprietary systems fast enough, as global knowledge, false assumption, grows exponentially, as a make-work project, consuming everything in its path.

    All the rules amount to one thing, we win and you lose, so be pleasant and go starve to death under a rock somewhere, or join the machine. Legacy has been breeding middle class layers for 5000 years, trying and failing to replace labor every time, because civil marriage does no work. It’s like putting up a solar grid and expecting no unintended consequences. Build a green energy industry to combat the oil industry, owned by the same families, brilliant.

    The critters are too stupid to conceive an end and a beginning. Start there, and leave the critters to the planet, which consumes them every time. You cannot choose life for others. Technology is not bad or evil; most of it is just stupid replacing stupid to make stupid more efficient.

    Net neutrality is a bad joke. The Internet is, and has been since its inception, a weapon, creating gravity, of which there is no shortage. You require an implicit infrastructure – a food bank, a communication system and an education system. The critters aren’t going to be happy until they torch the entire planet, and then they won’t be happy.

    Civil law is MAD. Did it ever occur to you that the laws cannot be effectively popped off the stack for a reason?

    Extortion is a one-way game, in which all the participants lose, sooner or later. The law follows behavior, breeding patterns, not the other way around. Fortunately, the critters breed themselves out, with civil marriage. The Burgermeister Meisterurgers come and go, yet life continues.

    All a bank can do is print. All the critters can do is compete for surplus, chasing the debt for conversion. It’s up to you to discount, the stupidity out of your life. They need that train, Dubai, fracking, and all the rest because they have locked themselves into a die-off, the slow moving train wreck. Of course they want to produce children without parents.

    The Internet is just a bigger TV, for robots, noise to sleep by.

  14. Min

    IANAL, but from what I have heard, the US courts have reinterpreted the anti-trust laws to focus on consumers. So the fact that WalMart sells stuff cheap is interpreted to mean that it is not violating anti-trust laws. MicroSoft got away with that, too, despite ruthlessly using its monopoly power. It would be nice to hear from legal experts on this. :)

    1. Yves Smith Post author

      I said that you saw similar effects to those with customers (abuse of pricing power) with vendors with Wal-Mart , but anti-trust law does not focus on vendors. I never said Wal-Mart was a candidate for anti-trust suits. Even at their scale, I am pretty sure they don’t have the market share nationally to hit the normal formulas for calculating undue concentration. . You’d need to do local market analyses to make the point re their power. That should be obvious, but defining what the local market is would be difficult and you’d get into dueling experts in court.

      1. SJB

        Thanks for bringing this issue up. I have wondered why it is not discussed more often–it clearly is a contributor to inequality. People dont seem to care about mergers because they don’t think it matters to them, and they don’t understand the really faulty logic that is used to allow them to occur.

    2. SJB

      In his book “The Anti-trust Paradox” Robert Bork made the claim that anti-trust policy, as is was then (in the late 1970″s) focused only on the supply side of the market, as Yves indicated in her response to you, by looking at the impact of mergers on industry concentration. He made the argument that anti-trust policy should consider the impact of a merger on consumers as well, i.e. is there a potential for consumers to gain surplus, as in the basic Supply-Demand model showing how consumer and producer surplus are distributed when an equibrium price is determined. This is of course a very simplistic model, and his argument for this kind of approach was an even more simplistic assessment. To make matters worse, my recollection is that his argument was that consumers don’t even have to benefit, just the POTENTIAL that they would benefit would be a reason for allowing a merger. What was supposed to be use of some economic standard really was no standard at all–ANY merger can be said to have the potential to improve consumer welfare. The issue is, does it? There never is any follow-up to find out, but it is clear that is not the case in most mergers (if not all).
      It appears that this argument took hold both in the courts and in the executive branch (I am also not a lawyer, and haven’t studied the history of this, I just was involved somewhat with antitrust in a previous job). So while the DOJ and the FTC look at the Herfindahl Index, they still use this idea that if consumers can benefit, it is OK, even if the index is high. To make matters worse, Both DOJ and FTC review mergers, they just have authority over different industries, so you get inconsistent policy in some cases.
      Yves is right about the way “market” is defined–it has a big effect on what the index is when you choose local versus national markets, so how they define the market is an important policy issue that can let one merger off the hooks while focusing on others that seemingly may seem absurd (hence the FTC being a stickler about Whole Foods buying Wild Oats, when so much of the food processing industry is highly concentrated).
      Also “Fair Economist” below makes a good point about monopsony power. DOJ and FTC look at it im merger reviews, but it doesn’t seem to make much of a difference. Suppliers frequently end up having the only option of seeking redress from abusive monosonly power being the court system, and it is really hard to make a case that will fly in the courts.
      It is ironic that even though Robert Bork did not get on the Supreme Court, he was very influential, although IMHO, not at all in a good way.
      I hope this is helpful

  15. Fair Economist

    There is a big shift in the style of monopoly, however. Monopolists today behave more as monopsonists, using their buying power to exploit their suppliers and workers. It’s a cleverer form of evil, because a lot fewer people are affected by any given companies exploitation. Plus, they pose as “bringing lower prices” and manage to convince many consumer they are a good thing.

    However, it’s still a transfer from makers to capitalists, and so much of the economy is sucked up by oligopolists these days that it’s certainly having a general effect on the economy. I’ve never seen any attempts to quantitate the effect, but I wouldn’t be shocked if it explains most of the yawning chasm that’s opened up between productivity and wages.

  16. Jim Shannon

    I challenge NC and all its readers to name a single Mega Merger in the last 30 years that created jobs! Profit before people is nothing new, but the deregulation of business, cost shifting and union busting in the last 30 years, has taken wealth extraction to a whole new level! Cost shifting is the name of the game, and ultimately it’s the consumer paying for the corruption of governments for the clear benefit of the world’s CentaMillionaire$ and Billionaire$.

  17. ProNewerDeal

    is there some index or study that periodically tracks (yearly, every 5 years, etc) the aggregate US private sector economy on a spectrum where say
    1 represents the pure competition of Microeconomics 101 where no supplier nor customer has much concentrated power & thus their behavior can substantially rig Quantity or Price in the market
    0 represents monopoly or oligopoly/cartel, where the company/cartel effectively rigs the market/Quantity/Price

    would be very interesting to such numbers, both the 2014 US vs historical US years; as well as 2014 US vs. other OECD or G20 nations.

  18. gordon

    I really wonder whether the simple narrative implicitly assumed by so many economists, that a competitive economy is where we start, is true. It seems more likely to me that the competitive economy of the neoclassical models is in fact a late development, and for most of our time on Earth the human race hasn’t had competitive economies at all. Where is the evidence that the inhabitants of Catal Huyuk had a competitive economy? The Sumerians and Babylonians? The Pharaonic Egyptians? The ancient Chinese? Anybody?

  19. Gabriel

    I’ve suspected that there is a link between greater corporate size and inequality. I’m also surprised that I haven’t seen this connection made elsewhere in the business or other press.

    Corporations love global markets because the firm can grow. They also love mergers and acquisitions for the same reason. And growth means larger salaries for top managers. All corporate boards and the IRS buy the argument that your top guys can be paid more if firm revenues grow, even in done by globalizing and M&As.. Higher revenues earned by whatever means allow higher salaries for those at or near the top.

    So in the end the top guys make a lot more – while they ship jobs overseas. The guys on the bottom are paid the same as before, perhaps even less.

    One big form of inequality, then, comes from higher, and rising, top salaries while the bottom salaries/wages flatten.

    What to do?
    Tax corporations on total net revenue.
    Force large corporations to break up once they reach a certain size – do we really need an Exxon or
    WalMart with revenues over $450 billion each?
    Tax personal incomes above, say, $30 mm at 100%.
    Tax personal assets above a certain large amount.
    Tax estates above, say, $1 mm at 100%.

  20. Kent Welton

    from my 1994 book…

    “These necessary tariff and anti-trust powers of the people are attacked by capital and stateless corporations for one reason – they restrict growth, monopoly, and perverse concentrations of wealth and power. With anti-trust divestments the people may increase competition, entrepreneurship, achieve better distributions of wealth and reward, and re-align markets toward the general welfare. However, few countries possess the ability to deal with stateless capital and global oligopoly, and so we must cooperate. Otherwise, with nations increasingly dependent and trade-impotent, and international bodies under the control of capital, the possibility for even anti-trust action is fast disappearing. Monopoly and oligopoly are then assured. This means “universal gain” is utter nonsense.”
    With nations disarmed, politics corrupted, and majorities tied to wage labor what agency can, or will, enforce anti-trust in a global mar- ket? What handful of global “competitors” will be prevented from oligopoly and monopoly if regulation is non-existent, seen as a restraint of trade, or crushed by politicians beholden to capital?
    In sum, even the concept of monopoly and oligopoly is evaporating today due to capital’s propaganda that “bigness doesn’t matter.” Soon, monopoly may have no impediment and a handful of “competitors” will emerge in global markets to diminish competition, variety, and concentrate wealth and power. As a few mega-corporations come to prevail in each market, they will turn the screws on consumers. As global monopolies and oligopolies emerge they will prevail, and then impotent, ill-informed, consumers will be without choice.”

    Kent Welton, CAP-COM, The Economics of Balance 1994

    1. Fiver

      You were right. I think it was about 30 years ago that I first heard the size of some US corporations being compared to not-tiny countries’ GDP – GM, Exxon. It was evident even then that corporate size and power had already broken out of reasonable and justifiable public interest constraints, especially of course in foreign markets of weak nations, of which there are plenty.

      Today it’s so far gone you have companies the size of Apple or Google or Microsoft or Exxon or JP Morgan making decisions about our future every bit as important as any government in the world, including the US. I don’t think private power has ever had so much scope for overtly anti-social unaccountability.

  21. Ed Bradford

    Article completely ignores government control of business and subsequent business payments to government controllers of business to benefit business. Author demonstrates no understanding of why the free market fails. All who believe this article have not studied US business history and/or will not engage. Very sad.

    1. Yves Smith Post author

      Tidy theory, rather at odds with observable fact.

      The biggest impetus for weak anti-trust enforcement has been judges that were intellectually captured by the law and economics movement, which was aggressively promoted by Henry Manne, an right winger initially associated with George Mason but who quickly extended his reach into other law schools.

    2. Fiver

      I will.

      You have the cart and horse mixed up. Big private power has owned the US Government for most of its history, the only partial departure of course being Roosevelt’s deal with labour in order to fight WWII, and his successors’ efforts to keep the millions of now-trained fighters along with the entire populace which ‘fought’ on the home front employed with incomes rising over time along with productivity, rather than doing something silly like opt for European-style democratic socialism. This was working rather well, except if you were not white and/or poor.

      The Vietnam War and the civil rights movements so freaked out the business Establishment of the day they embarked on a campaign to totally destroy that experiment in history from Nixon/Kissinger forward, whether the WH was held by Republican or Democrat. They’ve succeeded. The US State and US-based multinational corporations are essentially fused, with corporations taking all the gains and taxpayers all the losses – the notion that the US State somehow obstructs corporate business, or undermines it, or taxes it too highly just will not fly when so many individuals and corporations have made record amounts of money.

      Case File * 83948. Status: closed.

  22. Jeremy Grimm

    I’ve often wondered why this topic hasn’t come up more often. The area of the New America Foundation where one of the authors of the posted article originates: “Markets, Enterprise, and Resiliency Initiative”( ) has a number of similar postings. The Director of that area, Barry Lynn, has two books out that are well worth a read: “Cornered: The New Monopoly Capitalism and the Economics of Destruction”, and “End of the Line: The Rise and Coming Fall of the Global Corporation”. What I recall of Barry Lynn’s background reminded me of Kevin Phillips. Both of them originate from a fairly conservative background and both reach some very unconservative conclusions after considering the evidence.

    1. Banger

      One of the great tragedies of the “left” in the U.S. is that it has largely been unable to recognize the virtue of some conservative thought which is not associated with the Republican Party. NAF and Lynn and many others are working to try to create a more open society through making the market system work, protecting civil liberties, fighting against imperialism (The American Conservative Magazine) as well as many other voices on the intellectual “right.”

      We are coming to a time when it is a requirement of people who aren’t part of the deeply corrupt mainstream to come together and create a society that, if nothing else, is based on some principle other than tyranny which is the program being followed by both political parties.

      1. weinerdog43

        To which I reply, you first. For 40 years, conservatives and republicans in particular have been not only demonizing progressive policies and actions, they have gone off the deep end in vitriol and rage. It’s pretty difficult to respect someone’s point of view when they’re calling you a traitor.

        Even now, more than 10 years after Bush launched the Iraqi boondoggle that we liberals warned against, you have the same cast of characters (virtually all conservative) in print and on TV criticizing Obama for ‘losing Iraq’. Not a hint of shame or reflection for that titantic blunder.

        Nope, while I respect your point of view, reconciliation first requires an admission that one has treated the other badly. Most of us are not like Gandhi. Apologies first…. and no false equivalencies either.

  23. Ray Phenicie

    The paragraph starting with ‘While the shift in emphasis started in the 1970s, the new “free market” economic paradigm really took hold in the 1980s’ gives the crux to our whole situation in this country. Inside of the financialized, deregulated society Americans paid more and continue to pay ever increasingly more for several goods and services and received less and get less each day for their money: Housing, transportation, education, healthcare and food. All of these major items of consumer interest have been discussed much here at NC; today I’d like to revisit education.

    Twenty Other countries are rated more prosperous than the U.S. A college education in the U. S. though is much more expensive than 17 other top prosperous countries. Take the example of Germany which is in sixth place for cost and compare it to the U. S.
    Germany: Education costs: $933, Median income: $22,020, Affordability: 4.24%,
    Highest ranked university: Ludwig-Maximilians-Universität München (45) Number of universities in the top 100: 4

    U. S.: Education costs: $13,856*,Median income: $26,990, Affordability: 51.34%,
    Highest ranked university: California Institute of Technology (1), Number of universities in the top 100: 51

    Ironically enough, just as in healthcare, the U. S. has more of the world’s top universities, at least according to one ranking system.
    But it’s really not the cost in dollars that interests me most. Go please, to the Business Insider link about the cost and read about the the top system, Finland.
    Privatization has not taken over our education system yet but it has been institutionalized far enough and we pay the cost; again, not in lost dollars although that is an egregious wound to the body politic. We pay much more in lost opportunities to train a world class cadre of technologists, teachers, doctors, nurses, police staff, mental health care workers, in short our day to day living is affected by our inability to motivate our youth beyond the pablum of ‘you need to get on this treadmill to earn enough dough to survive and even then it’s going to be barely enough.’

    All for the glorification of some high risers on Wall Street and their Critters at East Capitol St NE & First St SE, Washington, DC 20004.

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