7 ms·

Market Concentration Is Threatening the US Economy

80 points by howard941 8y ago

gumby 8y ago
The irony of monopoly is that when broken upmitntypically benefits the former monopoly parts. Rockefeller Made more money after being broken up than he had as a monopolist. AT&T has underperformed since being reassembled from its post-breakup pieces, which had flourished with competition.
- chrisseaton 8y ago
  Is that's the case then why don't companies voluntarily break up?
  - gumby 8y ago
    people form conglomerates too which typically underperform. I guess it’s some combo of effort/risk? Collect a monopoly rent rather than take greater risk? Your question is not unknown to economists and there is no clear answer.
    - DennisP 8y ago
      Another possibility is an agency problem, where the company management is doing what's best for themselves rather than best for shareholders. (Just an idea, I don't know whether that's actually the case.)
  - smallgovt 8y ago
    I'm guessing that the cited post-breakup benefits accrue from a renewed level of focus. There are plenty examples of public companies breaking themselves up for this reason. e.g. IAC breaking off Match.com and ANGI Home Services. Service Master breaking off American Home Shield.
  - bluGill 8y ago
    Companies break up all the time. Sometimes as a "spin off" where a part is let go on its own. Sometimes a division is sold to someone else who wants it. Companies are in a constant process of changing size based on what they guess is the best place to be next year.
    - deleted 8y ago
      [deleted]
  - cc439 8y ago
    Companies break up all the time, it's just that such moves are rarely sexy enough to break through into the mainstream news cycle. Take Hewlett Packard for example, the comapny's very existence is owed to its origin as a manufacturer of test equipment (calibration and measurement equipment) but they decided to spin off that core business unit in 1999 as Agilent (this move was the largest ever IPO in Silicon Valley at the time). Their decision wasn't made on entirely financial grounds either, the idea was actually that a smaller, more focused leadership team would allow the business to become more agile and thus more profitable than it could be while under the burden of HP's broad-focused bureaucracy. To take that one step further, Agilent then spun off the electronic test equipment portion of the business (which was HP's original market when it was founded) as Keysight to focus on their life science divisions. Each of these decisions was made despite the spun-off division being successful under the greater corporate umbrella.
- daniel-cussen 8y ago
  The Rockefeller example, though frequently cited, is a red herring. Those companies were thereafter known as the "Seven Sisters" and not exactly known for truly competing with each other. There was also a comment here I read recently about Rockefeller being a pretty activist shareholder, in the sense that he arranged meetings--using his considerable clout--among heads of the resulting companies, many of which were his most loyal former employees.
  - jjoonathan 8y ago
    Right, ditto with AT&T. That's the point. Monopolies haven't always been able to resist being broken up -- but they have always been able to arrange the breakup so that the pieces don't compete and don't shift bargaining power to the consumer.
  - ghaff 8y ago
    Minor nit. The Seven Sisters weren't all descended from Standard Oil of New Jersey although a number of them were.
- deleted 8y ago
  [deleted]
- 40acres 8y ago
  This is a side effect that I'm willing to deal with. The problem with monopoly is not so much about the concentration of individual wealth in my mind, it's about the lack of competition between companies which make investment in R&D and innovation less of a factor to success. Rockefeller rightfully became more wealthy when he owned a large portion of stock in very successful, but highly competitive companies, as opposed to an unchallenged behemoth. It would be like splitting your stake in Walmart into equal shares of Amazon, Target and Dollar Tree.
  - ameister14 8y ago
    It's also interesting that when Rockefeller dominated the oil market and standardized it, the price of kerosene dropped dramatically. Rather than monopoly being negative for consumers, the competition had actually driven up prices and lowered quality standards as competitors sabotaged eachother
    - gumby 8y ago
      I think that was a function of the phase of the S curve. Also remember his tying: he controlled all the tankers so even if you competed with him in petroleum products he controlled your (literal) path to market.
sleepysysadmin 8y ago
The fundamental title and premise of the article is quite inaccurate. https://tcdata360.worldbank.org/indicators/hh.mkt?country=BRA&indicator=2370&countries=USA&viz=line_chart&years=1988,2015 https://tcdata360.worldbank.org/indicators/hh.mkt?country=BR... Clearly market concentration has been going DOWN worldwide since 1988. It's important to get your basics correct.
- dv_dt 8y ago
  The linked index is described as "Hirschman Herfindahl index is a measure of the dispersion of trade value across an exporter's partners." Can you expand on how this index relates to market concentration in general, or within a single nation like the US?
  - sleepysysadmin 8y ago
    https://en.wikipedia.org/wiki/Herfindahl_index https://en.wikipedia.org/wiki/Herfindahl_index Named after economists Orris C. Herfindahl and Albert O. Hirschman, it is an economic concept widely applied in competition law, antitrust[1] and also technology management. The article thoroughly discussed competition and antitrust. I have not missed the mark on the subject.
- zzzcpan 8y ago
  The link you provide uses a different meaning for market concentration, not what the article talks about. You can think of it as market monopolization instead if you don't like the wording.
- bwanab 8y ago
  At the risk of "appeal to authority", I'm going submit that Stiglitz is a Nobel Prize winner in economics. My guess is that he's got his bases pretty well covered.
  - sleepysysadmin 8y ago
    He's the Chief Economist of the World Bank... the source of my link. I completely agree with his new-keynesian economics. What I disagree with is his positions on socialism that might work. https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition Which hey, machine learning might make this work.
lotsofpulp 8y ago
This is the inevitable result of efficiencies of scale. With computers, databases, instant communications, why would a business be restricted in anyway to expand as far as it can once it has perfected whatever it is selling. In the long run, it would be beneficial for all consumers to be able to select from multiple sellers, but in the short term, it's beneficial for each consumer to purchase from the whomever is giving them the best value. That means everyone uses one of the top few banks, one of the top few retailers, one of the top few electronic device manufacturers, etc.
- anoncoward111 8y ago
  This is why junk yards and small businesses are a true blessing. I can pay someone $500 to put a $1000 engine into my car and get another 100,000 miles out of it, rather than "sorry that's not allowed, please go to the dealership and buy a new car". In some countries, said behavior is literally illegal or impractical. Killing small business would be the death of capitalism and freedom.
  - maxxxxx 8y ago
    "Killing small business would be the death of capitalism and freedom." Capitalism and capitalists would be fine. They would just operate in a non-competitive market. Which is preferred anyway once you have a dominant market position.
    - anoncoward111 8y ago
      Preferred by the monopoly and nobody else, is what you mean, yes? Which is to say it is against the will of the people,
      - Datenstrom 8y ago
        Are you asserting that capitalists care about freedom and the will of the people?
sykic 8y ago
Making matters worse, America’s low tax-to-GDP ratio – just 27.1% even before the Trump tax cut – means a dearth of money for investment in the infrastructure, education, health care, and basic research needed to ensure future growth. In comparison to our peers the U.S. is under taxed. The OECD average is 34.2%. What makes the average person feel overtaxed is the combination of federal income tax, state income tax (where it occurs), along with stagnant wages and high medical care costs. The U.S. spends far more per capita on healthcare than any other OECD nation. It is easy to convince a significant portion of average Americans that taxes are too high. So they vote for politicians that promise to lower taxes. Except they don’t lower taxes for average people. In a properly functioning political system this disconnect between promise and actuality would be taken care of at election time. In my lifetime I’ve not seen this happen and my political memory starts with the Reagan administration. Due to globalization and the ability of the top 0.1% to easily move money from country to country and to easily move citizenship from country to country one can no longer reasonably make the case that what is good for the top 0.1% is necessarily good for the country. The intersts of the nation as a whole and the interests of the top 0.1% are badly misaligned. The U.S. is politically unhealthy and until this changes I see no hope for improvement. I think only a shock to the system will really change things.
- refurb 8y ago
  United states is 26% tax to GDP. Australia is 27.8%. Switzerland is 27.8%[1] Are those countries broken too? [1]https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio https://en.wikipedia.org/wiki/List_of_countries_by_tax_reven...
  - sacheendra 8y ago
    Yes?
    - deleted 8y ago
      [deleted]
  - sykic 8y ago

80 points by howard941 8y ago

The irony of monopoly is that when broken upmitntypically benefits the former monopoly parts. Rockefeller Made more money after being broken up than he had as a monopolist. AT&T has underperformed since being reassembled from its post-breakup pieces, which had flourished with competition.

chrisseaton 8y ago
Is that's the case then why don't companies voluntarily break up?
- gumby 8y ago
  people form conglomerates too which typically underperform. I guess it’s some combo of effort/risk? Collect a monopoly rent rather than take greater risk? Your question is not unknown to economists and there is no clear answer.
  - DennisP 8y ago
    Another possibility is an agency problem, where the company management is doing what's best for themselves rather than best for shareholders. (Just an idea, I don't know whether that's actually the case.)
- smallgovt 8y ago
  I'm guessing that the cited post-breakup benefits accrue from a renewed level of focus. There are plenty examples of public companies breaking themselves up for this reason. e.g. IAC breaking off Match.com and ANGI Home Services. Service Master breaking off American Home Shield.
- bluGill 8y ago
  Companies break up all the time. Sometimes as a "spin off" where a part is let go on its own. Sometimes a division is sold to someone else who wants it. Companies are in a constant process of changing size based on what they guess is the best place to be next year.
  - deleted 8y ago
    [deleted]
- cc439 8y ago
  Companies break up all the time, it's just that such moves are rarely sexy enough to break through into the mainstream news cycle. Take Hewlett Packard for example, the comapny's very existence is owed to its origin as a manufacturer of test equipment (calibration and measurement equipment) but they decided to spin off that core business unit in 1999 as Agilent (this move was the largest ever IPO in Silicon Valley at the time). Their decision wasn't made on entirely financial grounds either, the idea was actually that a smaller, more focused leadership team would allow the business to become more agile and thus more profitable than it could be while under the burden of HP's broad-focused bureaucracy. To take that one step further, Agilent then spun off the electronic test equipment portion of the business (which was HP's original market when it was founded) as Keysight to focus on their life science divisions. Each of these decisions was made despite the spun-off division being successful under the greater corporate umbrella.
daniel-cussen 8y ago
The Rockefeller example, though frequently cited, is a red herring. Those companies were thereafter known as the "Seven Sisters" and not exactly known for truly competing with each other. There was also a comment here I read recently about Rockefeller being a pretty activist shareholder, in the sense that he arranged meetings--using his considerable clout--among heads of the resulting companies, many of which were his most loyal former employees.
- jjoonathan 8y ago
  Right, ditto with AT&T. That's the point. Monopolies haven't always been able to resist being broken up -- but they have always been able to arrange the breakup so that the pieces don't compete and don't shift bargaining power to the consumer.
- ghaff 8y ago
  Minor nit. The Seven Sisters weren't all descended from Standard Oil of New Jersey although a number of them were.
deleted 8y ago
[deleted]
40acres 8y ago
This is a side effect that I'm willing to deal with. The problem with monopoly is not so much about the concentration of individual wealth in my mind, it's about the lack of competition between companies which make investment in R&D and innovation less of a factor to success. Rockefeller rightfully became more wealthy when he owned a large portion of stock in very successful, but highly competitive companies, as opposed to an unchallenged behemoth. It would be like splitting your stake in Walmart into equal shares of Amazon, Target and Dollar Tree.
- ameister14 8y ago
  It's also interesting that when Rockefeller dominated the oil market and standardized it, the price of kerosene dropped dramatically. Rather than monopoly being negative for consumers, the competition had actually driven up prices and lowered quality standards as competitors sabotaged eachother
  - gumby 8y ago
    I think that was a function of the phase of the S curve. Also remember his tying: he controlled all the tankers so even if you competed with him in petroleum products he controlled your (literal) path to market.

sleepysysadmin 8y ago

The fundamental title and premise of the article is quite inaccurate. https://tcdata360.worldbank.org/indicators/hh.mkt?country=BRA&indicator=2370&countries=USA&viz=line_chart&years=1988,2015 https://tcdata360.worldbank.org/indicators/hh.mkt?country=BR... Clearly market concentration has been going DOWN worldwide since 1988. It's important to get your basics correct.

dv_dt 8y ago
The linked index is described as "Hirschman Herfindahl index is a measure of the dispersion of trade value across an exporter's partners." Can you expand on how this index relates to market concentration in general, or within a single nation like the US?
- sleepysysadmin 8y ago
  https://en.wikipedia.org/wiki/Herfindahl_index https://en.wikipedia.org/wiki/Herfindahl_index Named after economists Orris C. Herfindahl and Albert O. Hirschman, it is an economic concept widely applied in competition law, antitrust[1] and also technology management. The article thoroughly discussed competition and antitrust. I have not missed the mark on the subject.
zzzcpan 8y ago
The link you provide uses a different meaning for market concentration, not what the article talks about. You can think of it as market monopolization instead if you don't like the wording.
bwanab 8y ago
At the risk of "appeal to authority", I'm going submit that Stiglitz is a Nobel Prize winner in economics. My guess is that he's got his bases pretty well covered.
- sleepysysadmin 8y ago
  He's the Chief Economist of the World Bank... the source of my link. I completely agree with his new-keynesian economics. What I disagree with is his positions on socialism that might work. https://en.wikipedia.org/wiki/Perfect_competition https://en.wikipedia.org/wiki/Perfect_competition Which hey, machine learning might make this work.

lotsofpulp 8y ago

This is the inevitable result of efficiencies of scale. With computers, databases, instant communications, why would a business be restricted in anyway to expand as far as it can once it has perfected whatever it is selling. In the long run, it would be beneficial for all consumers to be able to select from multiple sellers, but in the short term, it's beneficial for each consumer to purchase from the whomever is giving them the best value. That means everyone uses one of the top few banks, one of the top few retailers, one of the top few electronic device manufacturers, etc.

anoncoward111 8y ago
This is why junk yards and small businesses are a true blessing. I can pay someone $500 to put a $1000 engine into my car and get another 100,000 miles out of it, rather than "sorry that's not allowed, please go to the dealership and buy a new car". In some countries, said behavior is literally illegal or impractical. Killing small business would be the death of capitalism and freedom.
- maxxxxx 8y ago
  "Killing small business would be the death of capitalism and freedom." Capitalism and capitalists would be fine. They would just operate in a non-competitive market. Which is preferred anyway once you have a dominant market position.
  - anoncoward111 8y ago
    Preferred by the monopoly and nobody else, is what you mean, yes? Which is to say it is against the will of the people,
    - Datenstrom 8y ago
      Are you asserting that capitalists care about freedom and the will of the people?

sykic 8y ago

Making matters worse, America’s low tax-to-GDP ratio – just 27.1% even before the Trump tax cut – means a dearth of money for investment in the infrastructure, education, health care, and basic research needed to ensure future growth. In comparison to our peers the U.S. is under taxed. The OECD average is 34.2%. What makes the average person feel overtaxed is the combination of federal income tax, state income tax (where it occurs), along with stagnant wages and high medical care costs. The U.S. spends far more per capita on healthcare than any other OECD nation. It is easy to convince a significant portion of average Americans that taxes are too high. So they vote for politicians that promise to lower taxes. Except they don’t lower taxes for average people. In a properly functioning political system this disconnect between promise and actuality would be taken care of at election time. In my lifetime I’ve not seen this happen and my political memory starts with the Reagan administration. Due to globalization and the ability of the top 0.1% to easily move money from country to country and to easily move citizenship from country to country one can no longer reasonably make the case that what is good for the top 0.1% is necessarily good for the country. The intersts of the nation as a whole and the interests of the top 0.1% are badly misaligned. The U.S. is politically unhealthy and until this changes I see no hope for improvement. I think only a shock to the system will really change things.

refurb 8y ago
United states is 26% tax to GDP. Australia is 27.8%. Switzerland is 27.8%[1] Are those countries broken too? [1]https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio https://en.wikipedia.org/wiki/List_of_countries_by_tax_reven...
- sacheendra 8y ago
  Yes?
  - deleted 8y ago
    [deleted]
- sykic 8y ago