This article has been republished, with permission, from EcoTalker, HERE.

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In today’s world, monopolies abound. This does not come as a surprise to a regular newspaper reader, but the notion that monopolies are not an atypical characteristic of capitalism sure does.  According to Marxian economist Richard Wolff, competition leads to its own extinction; when firms are competing against one another, some of them will come up with a better product or price, wiping their competitors out completely, or whittling down the number of firms in the market to a select few who can collude to set prices. This statement might have been met with derision a few decades ago, but a closer look at the degree of concentration in American markets finds that out of 900 sectors, two-thirds became more concentrated between 1997 and 2012.  As an institution, capitalism, and the free market is based on the rules that governments make regarding the property, monopoly, bankruptcy, contracts, and enforcement. In the status quo, these rules include strong intellectual property rights (such as patents), weak enforcement of antitrust laws and licensing, creating an environment in which monopolies and oligopolies thrive.

Monopoly: Market Power or Efficiency?

For the purpose of this article, I will extend my arguments to monopolies as well as oligopolies because, despite the fact that wealth and market power are increasingly concentrated in the hands of the few, there are few examples of true monopolies that are not state monopolies. However, before we move forward to examine the relationship between regulatory capture and monopolies, I will first start by giving you an overview of the case for antitrust laws. While proponents of monopoly argue that monopolies increase efficiency in markets, recent papers, however, suggest that this is not true. An analysis of plant and firm-level productivity after acquisitions and mergers found little evidence to support an increase in efficiency despite in-depth analysis that looked at various possible sources of an increase in efficiency, such as relocation of activities across plants. There was, however, evidence of an increase in markups in comparison to the not acquired plants that ranged between 15% and 50%. What becomes even more telling is the divergence in markups in cases of horizontal (when firms are in the same industry) and non-horizontal mergers- the markup effect was stronger for the first category. It is clear that much of the benefit to monopolies stems from a concentration of market power, not increased efficiency by combining roles and production.

The concentration of market power in the hands of one (or more) big firm(s) also encourages the other, smaller firms in the market to merge, in order to compete with the resources that these firms might have: a merger between CBS and Viacom, two companies with a market value of  $17 and $11 billion respectively appears to be a clear effort to counter giants such as Disney ($240 billion) and Verizon ($230 billion) after acquisitions of their own. Adding to this is the fact that the concentration of market power increases the barriers to entry in a market, making it tough for competition to come up. This has created increasing monopolization in many sectors, which has lead to what is the cause of much discontent and resentment (and rightly so!)- corporate profits are at a record high, while wages remain stagnant, and in some cases, even decrease. The functioning of big firms in the wage market presents other troubles- they create a monopsony (a market with only one buyer) and this allows them to set low wages for an entire industry or area, by reducing mobility for workers.

To regulate, or not…

This begs the question of when governments should intervene to regulate monopolies and break them up. For a certain period of time, the consumer welfare standard was followed to determine consumer intervention. Then, however, the standard changed; now courts declared that monopolistic restraint of trade was only unacceptable if it was unreasonable, and the power to determine this “unreasonably” lies with the court itself. A vocalization against monopolies and big corporations has only recently taken root in the United States- the many democratic candidates for the 2020 elections have led targeted attacks on large corporations and unveiled plans for antitrust action. They have a long road ahead of them; the power that monopolies and oligopolies have to influence society and politics is deeply entrenched in America.

Part of this power comes from fairly overt and well-known tactics, such as lobbying. The rest, however, comes from more covert and far less accountable means- steady funding of candidates contesting elections (for which they are now allowed to spend unlimited money), studies to influence the public perception of their products and industries, and funding organisations and think tanks that tend to publish reports reflecting favorably on whomsoever funds them, and their reports are then pointed to as credible when legislation threatens the profits of a corporation. This has led to a state of regulatory capture- a case of government failure in which institutions that were set up for public good become dominated by special interest groups, leading to a net loss by society. I, however, fear that the public response to this state has spurred corporations to further meddle in the state of politics and society, by attempting to solve the social and economic problems that have caused much disgruntlement in the past few years. But this isn’t a move that comes without pitfalls- as a recent article by The Economist points out, such interference comes without accountability or dynamism, both central to solving the problems that plague society. This move also increases their ability to control, influence and frame mainstream discourse on issues in which they have no clear stake.

So while seeing big corporations agree to take responsibility for the fallout of economic inequality and public interest that their single-minded quest for profits often leaves might ease something in you, I would advise caution and scrutiny: after all, a watched pot never boils.

Photo by Tal Bright – Political on Flickr.