Reality Check – Warren Highlights Oligopoly Control Of Our Economy

Warren then highlights five important reasons why this type of concentration is dangerous and counterproductive.  First, it leaves consumers with fewer choices, higher prices, and worse service. Americans pay higher prices for broadband than any other country and get far worse service. And many areas of the country are still basically not served because telecoms have deemed the lack of population density makes service there unprofitable. Beef and poultry prices are higher than they should be. And we don’t have to be reminded of the damage that the “too big too fail” banks did to the US and global economy.

Second, the dominant players in  the market can use their power to freeze smaller players out. Just look at telecoms trying to create the two-tiered internet to give priority to their own content. Or Amazon favoring its own published content over others. Or Apple restrictions on rival music streaming platforms.

Thirdly, bigger players can decimate smaller companies simply through economies of scale. WalMart controls 30% to 50% of all goods sold in America and over half of the groceries in some cities and its entry into geographic area usually leads to the collapse of smaller stores in that locale.

Fourth, these big oligopolies wield enormous political power that they use to tilt the playing field even further in their favor. Industry lobbyists have undue influence on legislation and trade deals that go through Congress. They can and do push through regulatory changes that actually increase the barriers to competition.

And finally, the enormous profits that these huge firms create primarily go to only the top executives and shareholders, increasing inequality and helping to destroy the middle class. The top 500 firms in the US account for nearly 50% of all profits. The aforementioned WalMart pays its workers so little that it is estimated that their employees receive about $6 billion per year in government assistance even as the company rakes in big profits.  Taxpayers are actually subsidizing WalMart executives’ and shareholders’ income.

Other side effects of this increased concentration in all sectors of the economy could be the decline in productivity that has occurred since the Great Recession. Without any real competition, firms spend more effort exploiting their market position while firms with innovative new ideas cannot hurdle the barriers to enter these markets. In addition, higher CEO pay has also been linked to this increased concentration due the common ownership of these oligopolies by mutual funds.

How did we end up here? Well it all goes back to the infamous Robert Bork in the 1970s who managed to convince the Supreme Court that there should be no antitrust enforcement if it could be shown that the consumer will somehow benefit from the creation of the larger company. And companies could always find a way to show that consumers would benefit, at least initially. If the efficiencies of that larger company never materialized, then, Bork reasoned, the market would intervene and break the monopoly or oligopoly up. It was a classic laissez-faire argument that totally ignored the reality of the political power and the ability create enormous obstacles to any other competitor trying to get in the market. But that’s how all these firms were allowed to get bigger and bigger until we are left with what we see today.

So how do we start to break up these concentrated industries and bring in some real competition. Warren highlights three areas where the executive branch can act without legislation to rewrite the current antitrust laws. First is to begin to block anticompetitive mergers again. Secondly, carefully scrutinize vertical mergers that allow control of the supply chain. And third, require all agencies to promote competition.

These are all good ideas but I’m afraid the real answer is to go back to the previous standard where a certain size and market share will just not be tolerated. Unfortunately, that will require legislation and guess what, all those powerful companies listed above will be fighting every step of the way to make that legislation never sees the light of day.

We love to talk about all the great competition in the American economy, but these days that is just a myth. In some of the most important areas of our economy, there really is no competition, just an oligopoly controlling the vast majority of the market. Please go and read Warren’s speech in its entirety. Low wages, inequality, higher prices, lack of choice, and poor customer service are all problems that are rampant at present. Reducing the concentration of power in our business sectors won’t solve these problems but it will mitigate them. Competition is the lifeblood of capitalism and a dynamic economy. Sadly, we have lost that over the last 30 or 40 years in this country.