6 ms·

> infant formula is strictly regulated for very good reasons > Also, of course, we shouldn't have let such a critical product mostly be made by 3 companies, bu

by bko 4y ago

> infant formula is strictly regulated for very good reasons > Also, of course, we shouldn't have let such a critical product mostly be made by 3 companies, but that's another rant. Do you think these two are related?

MichaelZuo 4y ago
Was just about to say as well. The more regulated an industry is the more consolidated it will become and the higher the costs will have to be, which either get passed on to consumers and/or in cutting capacity.
- frankbreetz 4y ago
  I don't think that's true. Look at banks, to are highly regulated and there are almost 5000 of them[0] https://en.m.wikipedia.org/wiki/Banking_in_the_United_States https://en.m.wikipedia.org/wiki/Banking_in_the_United_States
  - MichaelZuo 4y ago
    Most of the 'banks' in that count serve as the local monopoly, or as part of a duopoly, or triopoly in their region and are protected by and regulated primarily by state laws as well. Many state banking regulations are significantly more lax than federal banking regulation. The handful of banks in the U.S. that serve multiple states and fall under federal banking regulation seem even more consolidated than the baby formula industry on a variety of metrics. Certainly more consolidated per dollar of cash flow. Probably more consolidated per dollar of net profits. etc. Which would be the expected outcome of the theory if the baby formula industry in the U.S. were less regulated than federal banks but more regulated than state banks.
  - caylus 4y ago
    There may be thousands of banks, but all but a few manage their funds at one of the big few, essentially acting as resellers of the big banks' services. For example, I my bank is "Ally Bank", but if I ask them for instructions on how to receive a wire transfer, they instruct me to direct it to "JP Morgan Chase Bank, N.A.", the largest bank in the U.S. I previously used the brand "Simple Bank", which provided accounts via "The Bancorp Bank", the 5th largest. It's a similar case to cell phone providers: although there are hundreds in the U.S., all but four do not operate their own network, but rather resell the network of one of the big four. It's an interesting question, though, how much this consolidation is due to regulation versus being a result of a natural monopoly, i.e. high barrier to entry for the type of business.
    - BenjiWiebe 4y ago
      A nitpick - there actually are small cell phone providers that operate their own network. They usually have expensive and slow roaming on one of the big providers once you leave their area though.
    - lotsofpulp 4y ago
      > It's a similar case to cell phone providers: although there are hundreds in the U.S., all but four do not operate their own network, but rather resell the network of one of the big four. Three mobile networks, since Sprint was merged into T-Mobile. It was also inevitable since it does not make much sense to have many different organizations install cell towers and run all that wiring all over a country the size of the US, and split a limited resource like wireless spectrum conducive to data transfer.
  - missedthecue 4y ago
    Banks are probably the worst example you could have given. There were ~12,500 banks in the US as recently as 1990 (when the population was much smaller than it is today!) Since the regulations that were passed following the great financial crisis, almost zero new banks have been founded. https://ilsr.org/number-of-new-banks-created-by-year-1993-to-2013/ https://ilsr.org/number-of-new-banks-created-by-year-1993-to...
  - elcritch 4y ago
    IMHO, both situations are true. There used to be more regulations in the US to prevent monopoly formations in media in a region [1] that once relaxed lead to more concentration. Banks had/have some regulations on M&A [2] which when relaxed generally result in smaller banks getting bought out. Concentration are natural trends in many markets without regulation to limit it. Maintaining the "invisible hand of free markets" isn't actually a naturally stable equilibrium in many markets. Especially those where fungibility is low (local media, local banking, ISPs, healthcare, etc). Now in other markets a high bar of regulations conversely encourage concentration due to increase costs of meeting the regulations. Reforms like Frank-Dodds can be a mix, both making it more expensive to meet the accounting and reporting needs favoring larger companies, but also imposing rules limiting concentration of ownership. However regulation heavy fields can still be opened up by startups/new entrants if they're significantly better than competitors (SpaceX comes to mind). It's multi-faceted game theory, not a simple rule or sliding scale. 1: https://www.mofo.com/resources/insights/210503-fcc-relaxed-media-ownership-rules.html https://www.mofo.com/resources/insights/210503-fcc-relaxed-m... 2: https://www.fdic.gov/regulations/laws/rules/5000-1200.html https://www.fdic.gov/regulations/laws/rules/5000-1200.html
    - daniel-cussen 4y ago
  - yen223 4y ago
    Look at search engines, which are highly unregulated and there's like 5 of them
    - dahfizz 4y ago
      X implying Y does not mean !Y implies !X
      - josephcsible 4y ago
        > X implying Y does not mean !Y implies !X Yes it does. That's modus tollens.
        BalinKing 4y ago
        From the context, I think they meant “X implying Y does not mean !X implies !Y.”
- MereInterest 4y ago
  Why is that? I can think of "just so" explanations that would point in the opposite direction, that less regulation leads to more consolidation. For example, the less regulated an industry is, the fewer barriers there are to buying up competitors. Or the less regulated an industry is, the more companies in the industry will be forced to cut corners to remain competitive, decreasing resiliency and causing bankruptcy when conditions change.
  - hansvm 4y ago
    Regulation usually implies not just behaving appropriately but proving you behave appropriately, which has significant costs and precludes the smaller portions of the market. I don't have a good mental model for why excluding all firms under, say, $1M would have a different consolidation pattern from including everyone, but it's not totally unreasonable to assume something simple like starting with drastically fewer companies will end with fewer companies as well (that consolidation is monotonic). There might be some nice explanation for that difference.
    - chii 4y ago
      what if gov't regulated industry must also come with a mandated set of startup tax breaks or grants, for fostering competition? If regulation is what stops competition from forming, but the regulation is required for safety reasons, it makes logical sense to assist new competition into the market. This assistance should be limited to helping the startup be certified, etc, in such as way as to eliminate the barrier to entry resulting from the regulation (but not more - i.e., startups aren't getting extra help beyond that, so as not to artificially subsidize them but not their larger counterparts).
      - epicureanideal 4y ago
        > This assistance should be limited to helping the startup be certified, etc Sounds like it would create some inappropriate incentives for lawyers and others assisting with certification... But generally I agree with the sentiment of the idea. Just not sure how to deal with further layers of problems.
- seanp2k2 4y ago
  [flagged]
  - johnisgood 4y ago
    ...But our market is distorted by the Government to oblivion. Plus yeah, private is pretty damn efficient, have you ever looked around?
    - serenitylater 4y ago
  - inferiorhuman 4y ago
    You're replying to a comment about an article from Reason on Hacker News. Godspeed.
  - iratewizard 4y ago
    Considering that it's a heavily regulated space, it sounds more like your dream of an authoritarian, centrally planned economy failed.
- Abishek_Muthian 4y ago
  Just like the telecom industry, Making it ludicrously easy for an attacker to taken down communications during a war. I hope the current world events forces the governments to rethink their strategy of keeping the telecom industry an oligopoly and decide that reducing the barrier for entry to the telecom industry is vital for the national security.
- johnchristopher 4y ago
  Can't wait for VC to pump money in startups that will bring free baby formula to everyone through sponsored growth marketing /s.
- specialist 4y ago
  Winner takes all outcomes are inevitable without regulation to preserve competition. Orthogonal to administrative burden, regulatory capture, politics (dairy lobby, protectionism, whatever). Which are all also base states which must be actively thwarted. The world is more complicated than Chicago School of Economics' Kiplingesque just so stories.
  - MichaelZuo 4y ago
    Why do you believe winner takes all outcomes are inevitable without regulation? Anyways, if you can devise a way to regulate millions of people spread across thousands of organizations with even 10% less 'administrative burden, regulatory capture, politics' you will certainly become the most influential person of all the time, assuming you keep on delivering year after year.
    - deleted 4y ago
      [deleted]
    - specialist 4y ago
      Here's a fare primer: https://fs.blog/mental-model-winner-take-all/ https://fs.blog/mental-model-winner-take-all/ tldr: power laws, prefential attachment, compound interest.
      - MichaelZuo 4y ago
        That explains the likelihood of a winner-takes-most situation developing. But that doesn't equate to a winner-takes-all situation. I can easily see the 3 largest companies in a given sector taking 90% marketshare, or more. But to imagine 1 company taking 90% marketshare? I haven't seen a credible argument for why that would generally develop outside of some specific niche.
giraffe_lady 4y ago
Not really no. Plenty of things are much less regulated and just as consolidated (in fact, many examples that are also consolidated into exactly this same set of companies). So it may have some effect but clearly isn't the main one since we see this result for all kinds of products at every level of regulation.
shadowgovt 4y ago
Regulation can also mandate a reserve stock. The fact these regulations didn't reflects badly on these regulations, not regulation in general.
hapiri 4y ago
Well yes but would you suppose they deregulate infant formula ?
pnt12 4y ago
That's a perplexing blanket libertarian statement We shouldn't let the market decide what goes into baby formula, that would be crazy.

by bko 4y ago

MichaelZuo 4y ago

Was just about to say as well. The more regulated an industry is the more consolidated it will become and the higher the costs will have to be, which either get passed on to consumers and/or in cutting capacity.

frankbreetz 4y ago
I don't think that's true. Look at banks, to are highly regulated and there are almost 5000 of them[0] https://en.m.wikipedia.org/wiki/Banking_in_the_United_States https://en.m.wikipedia.org/wiki/Banking_in_the_United_States
- MichaelZuo 4y ago
  Most of the 'banks' in that count serve as the local monopoly, or as part of a duopoly, or triopoly in their region and are protected by and regulated primarily by state laws as well. Many state banking regulations are significantly more lax than federal banking regulation. The handful of banks in the U.S. that serve multiple states and fall under federal banking regulation seem even more consolidated than the baby formula industry on a variety of metrics. Certainly more consolidated per dollar of cash flow. Probably more consolidated per dollar of net profits. etc. Which would be the expected outcome of the theory if the baby formula industry in the U.S. were less regulated than federal banks but more regulated than state banks.
- caylus 4y ago
  There may be thousands of banks, but all but a few manage their funds at one of the big few, essentially acting as resellers of the big banks' services. For example, I my bank is "Ally Bank", but if I ask them for instructions on how to receive a wire transfer, they instruct me to direct it to "JP Morgan Chase Bank, N.A.", the largest bank in the U.S. I previously used the brand "Simple Bank", which provided accounts via "The Bancorp Bank", the 5th largest. It's a similar case to cell phone providers: although there are hundreds in the U.S., all but four do not operate their own network, but rather resell the network of one of the big four. It's an interesting question, though, how much this consolidation is due to regulation versus being a result of a natural monopoly, i.e. high barrier to entry for the type of business.
  - BenjiWiebe 4y ago
    A nitpick - there actually are small cell phone providers that operate their own network. They usually have expensive and slow roaming on one of the big providers once you leave their area though.
  - lotsofpulp 4y ago
    > It's a similar case to cell phone providers: although there are hundreds in the U.S., all but four do not operate their own network, but rather resell the network of one of the big four. Three mobile networks, since Sprint was merged into T-Mobile. It was also inevitable since it does not make much sense to have many different organizations install cell towers and run all that wiring all over a country the size of the US, and split a limited resource like wireless spectrum conducive to data transfer.
- missedthecue 4y ago
  Banks are probably the worst example you could have given. There were ~12,500 banks in the US as recently as 1990 (when the population was much smaller than it is today!) Since the regulations that were passed following the great financial crisis, almost zero new banks have been founded. https://ilsr.org/number-of-new-banks-created-by-year-1993-to-2013/ https://ilsr.org/number-of-new-banks-created-by-year-1993-to...
- elcritch 4y ago
  IMHO, both situations are true. There used to be more regulations in the US to prevent monopoly formations in media in a region [1] that once relaxed lead to more concentration. Banks had/have some regulations on M&A [2] which when relaxed generally result in smaller banks getting bought out. Concentration are natural trends in many markets without regulation to limit it. Maintaining the "invisible hand of free markets" isn't actually a naturally stable equilibrium in many markets. Especially those where fungibility is low (local media, local banking, ISPs, healthcare, etc). Now in other markets a high bar of regulations conversely encourage concentration due to increase costs of meeting the regulations. Reforms like Frank-Dodds can be a mix, both making it more expensive to meet the accounting and reporting needs favoring larger companies, but also imposing rules limiting concentration of ownership. However regulation heavy fields can still be opened up by startups/new entrants if they're significantly better than competitors (SpaceX comes to mind). It's multi-faceted game theory, not a simple rule or sliding scale. 1: https://www.mofo.com/resources/insights/210503-fcc-relaxed-media-ownership-rules.html https://www.mofo.com/resources/insights/210503-fcc-relaxed-m... 2: https://www.fdic.gov/regulations/laws/rules/5000-1200.html https://www.fdic.gov/regulations/laws/rules/5000-1200.html
  - daniel-cussen 4y ago
- yen223 4y ago
  Look at search engines, which are highly unregulated and there's like 5 of them
  - dahfizz 4y ago
    X implying Y does not mean !Y implies !X
    - josephcsible 4y ago
      > X implying Y does not mean !Y implies !X Yes it does. That's modus tollens.
      - BalinKing 4y ago
        From the context, I think they meant “X implying Y does not mean !X implies !Y.”
MereInterest 4y ago
Why is that? I can think of "just so" explanations that would point in the opposite direction, that less regulation leads to more consolidation. For example, the less regulated an industry is, the fewer barriers there are to buying up competitors. Or the less regulated an industry is, the more companies in the industry will be forced to cut corners to remain competitive, decreasing resiliency and causing bankruptcy when conditions change.
- hansvm 4y ago
  Regulation usually implies not just behaving appropriately but proving you behave appropriately, which has significant costs and precludes the smaller portions of the market. I don't have a good mental model for why excluding all firms under, say, $1M would have a different consolidation pattern from including everyone, but it's not totally unreasonable to assume something simple like starting with drastically fewer companies will end with fewer companies as well (that consolidation is monotonic). There might be some nice explanation for that difference.
  - chii 4y ago
    what if gov't regulated industry must also come with a mandated set of startup tax breaks or grants, for fostering competition? If regulation is what stops competition from forming, but the regulation is required for safety reasons, it makes logical sense to assist new competition into the market. This assistance should be limited to helping the startup be certified, etc, in such as way as to eliminate the barrier to entry resulting from the regulation (but not more - i.e., startups aren't getting extra help beyond that, so as not to artificially subsidize them but not their larger counterparts).
    - epicureanideal 4y ago
      > This assistance should be limited to helping the startup be certified, etc Sounds like it would create some inappropriate incentives for lawyers and others assisting with certification... But generally I agree with the sentiment of the idea. Just not sure how to deal with further layers of problems.
seanp2k2 4y ago
[flagged]
- johnisgood 4y ago
  ...But our market is distorted by the Government to oblivion. Plus yeah, private is pretty damn efficient, have you ever looked around?
  - serenitylater 4y ago
- inferiorhuman 4y ago
  You're replying to a comment about an article from Reason on Hacker News. Godspeed.
- iratewizard 4y ago
  Considering that it's a heavily regulated space, it sounds more like your dream of an authoritarian, centrally planned economy failed.
Abishek_Muthian 4y ago
Just like the telecom industry, Making it ludicrously easy for an attacker to taken down communications during a war. I hope the current world events forces the governments to rethink their strategy of keeping the telecom industry an oligopoly and decide that reducing the barrier for entry to the telecom industry is vital for the national security.
johnchristopher 4y ago
Can't wait for VC to pump money in startups that will bring free baby formula to everyone through sponsored growth marketing /s.
specialist 4y ago
Winner takes all outcomes are inevitable without regulation to preserve competition. Orthogonal to administrative burden, regulatory capture, politics (dairy lobby, protectionism, whatever). Which are all also base states which must be actively thwarted. The world is more complicated than Chicago School of Economics' Kiplingesque just so stories.
- MichaelZuo 4y ago
  Why do you believe winner takes all outcomes are inevitable without regulation? Anyways, if you can devise a way to regulate millions of people spread across thousands of organizations with even 10% less 'administrative burden, regulatory capture, politics' you will certainly become the most influential person of all the time, assuming you keep on delivering year after year.
  - deleted 4y ago
    [deleted]
  - specialist 4y ago
    Here's a fare primer: https://fs.blog/mental-model-winner-take-all/ https://fs.blog/mental-model-winner-take-all/ tldr: power laws, prefential attachment, compound interest.
    - MichaelZuo 4y ago
      That explains the likelihood of a winner-takes-most situation developing. But that doesn't equate to a winner-takes-all situation. I can easily see the 3 largest companies in a given sector taking 90% marketshare, or more. But to imagine 1 company taking 90% marketshare? I haven't seen a credible argument for why that would generally develop outside of some specific niche.

giraffe_lady 4y ago

Not really no. Plenty of things are much less regulated and just as consolidated (in fact, many examples that are also consolidated into exactly this same set of companies). So it may have some effect but clearly isn't the main one since we see this result for all kinds of products at every level of regulation.

shadowgovt 4y ago

Regulation can also mandate a reserve stock. The fact these regulations didn't reflects badly on these regulations, not regulation in general.

hapiri 4y ago

Well yes but would you suppose they deregulate infant formula ?

pnt12 4y ago

That's a perplexing blanket libertarian statement We shouldn't let the market decide what goes into baby formula, that would be crazy.