Market Concentration

The other side to competition is market concentration with most comments on market concentration focus on the tech giants, like Facebook, Google, Amazon, etc but there is a similar trend occurring in the more established industries, like banking, airlines, beer, pesticide, etc

Since the early 1980s, there has been a trend towards 3 or 4 competitors controlling entire markets.

"...rising market power by dominant firms has created less competition, lower investment in the real economy, lower productivity, less economic dynamism with fewer start-ups, higher prices for dominant firms, lower wages and more wealth inequality......CEOs cosy up to regulators to get the kind of rules they want and donate to get the laws they desire. Large companies get larger, while the smaller disappear, and the consumer and worker is left with no choice..."

Jonathan Tepper 2018

Some examples include the USA airline industry

"...most US airlines dominate a local hub......known as fortress hubs, where they face little competition and have a near monopoly. They have the landing slots, and are willing to engage in predatory pricing to keep out new entrants. At 40 of the hundred largest US airports, a single airline controls a majority of the market. United......dominates many of the country's largest airports. In Huston, United has a 60% market share, in Newark 51%, in Washington and Dallas 43%, in San Francisco 38% and in Chicago 31%...... Delta has 80% market share in Atlanta and 77% in Philadelphia, while in Dallas-Fort Worth it has 77%..."

Jonathan Tepper 2018

Examples of other highly concentrated industries include

"...Two corporations control 90% of the beer Americans drink; 5 banks control half the nation's banking assets and, after 2 mergers this year, 3 companies will control 70% of the world's pesticide market..."

Jonathan Tepper 2018

Also, outdated laws are ill-equipped to deal with extreme-winner-take-all dynamics in the tech industry, ie

"...Google completely dominates Internet search with an almost 90% market share, Facebook has almost 80% share of social networks. Both have a duopoly in advertising with no credible competition or regulation. Amazon is crushing retailers and faces conflict-of-interest as both the dominant e-commerce seller and the leading online platform of third-party sellers. It can determine what products can and cannot sell on its platform, and it competes with every customer that encounters success. Apple's iPhone and Google's Android completely control the mobile app market in a duopoly, and determine whether businesses can reach their customers and on what terms. Existing laws were not even written with digital platforms in mind......Economic and political power is becoming concentrated in the hands of distant monopolists...... income and wealth inequality have increased as companies have captured more and more of the economic pie..."

Jonathan Tepper 2018

Some more examples

- retail (Walmart)
"...studies have found that new Walmart stores derive 84% of their sales by taking them away from existing local businesses. Another study found that the expansion of 3,000 Walmart stores caused the closure of 11,000 other stores. When a local retailer makes money, it distributes more than 60% of every dollar back to the local community. When a chain takes that dollar, 40% stays. The rest goes out of town..."

Yancey Strickler 2019

- radio
"...Half of all radio stations in America are owned by just two companies. The same resource that officials thought (in the 1920s) so important that no one should own more than two of them is now dominated by just two companies..."
Yancey Strickler 2019

Impacts of concentration

Linked with this concentration is the decline of competition and entrepreneurship, ie
"...American entrepreneurship rates today are, per capita, half of what they were in the 1970s..."
Yancey Strickler 2019

The main reason for this is that powerful competitors, like large tech companies, dominant the industries and discourage independent entrepreneurial efforts. Some examples: why get into
- retail when your competitors are Amazon, Walmart, Home Depot, Target, etc
- social media when your competitors are Google, Facebook, etc
- fast-food when your competitors are McDonald's, Hungry Jack's, KFC, etc?
"...in 2018, 70% of the Web traffic and 90% of digital advertising were controlled by Google and Facebook. Virtually all our mobile phone software is controlled by Apple and Google. These companies use their size to achieve unprecedented control over the Web..."
Yancey Strickler 2019

The large tech firms are concentrating their holds on different industries by
"...controlling data on consumer preferences, people's spending habits, their finances and Internet search history gives the big tech platforms enormous power and influence..."
John Kehoe 2018

There is evidence that some of the larger firms are stifling entrepreneurship by taking over new start-ups that are potentially disruptive to the established businesses and then allowing start-ups to disappear. For example, DeepMind Technologies
"...was a British artificial intelligence start-up that learnt to play video and board games - like chess - better than humans was gobbled up by Google in 2014..."
John Kehoe 2018

Google paid $600 m. for DeepMind and since then it has gone quiet.
"...Once the big tech companies buy something, it's dead - they're looking to kill it..."
Kenneth Rogoff as quoted by John Kehoe 2018

Another example is Oculus (a virtual reality company) which was purchased by Facebook in 2014 for $US 2 b.
"...Bernie C Burnie and Sewell worked so hard. The reason that Oculus was so valuable was that it had designed an alternative operating system......'the bidders' didn't care about the virtual reality, they cared about the operating system that might challenge Android, iOS and Windows..."
Kenneth Rogoff as quoted by John Kehoe

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