4 ms·

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,

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.
  - specialist 4y ago
    Aka Govt administered cartelism. Which we already have. The trick is changing the governance (incentives, transparency, accountability) to favor people over corporations (and finance). Perhaps one step would be to stop thinking of corporations are superpersons, deserving of superrights. Instead, we could charter corporations and stipulate that they serve the public good.
tshaddox 4y ago
I don’t think the commenter was talking about competition law (aka antitrust law), but rather lower level regulations concerning day to day operations. Stuff like food safety regulations, hours of service regulations for truck drivers, etc. I think many (but probably not all) of these regulations will tend to encourage consolidation simply by imposing an additional cost that benefits from economies of scale.
Meekro 4y ago
Starting a company in a regulated field is hard. With unregulated fields like most internet companies, you "just do it" -- as long as you pay your taxes, the government will pretty much leave you alone. In a regulated field, the hard part is not following the rules but merely trying to figure out what the rules are. People who haven't dealt with this are probably picturing something straightforward and readable like "thou shalt not put poison in the groundwater" but what you really get is thousands of pages of incomprehensible nonsense that you don't stand a chance of understanding on your own. There are law firms that can help with this, but now it's scary and expensive enough that the 18 year old founders will stay away. In purely unregulated fields like web hosting, there are tens of thousands of competitors because it's easy to create one. It's true that someone could go around buying up a bunch of them (and companies have done this), but even after they're done there are still thousands of competitors remaining. If a regulatory agency wrote couple thousand pages of rules for web hosts, many existing owners would probably sell their companies rather than embark of the emotionally draining task of trying to make sense of those rules. Ironically, as the number of competitors declines, the ones that remain will feel more free to abuse both employees and customers. This will lead to demands for more regulation, which reduces the number of competitors further, and so on it goes.
ethbr0 4y ago
Because understanding and satisfying regulations has a high minimum cost and scales slower than revenue. Consequently, in heavily regulated industries, it's more efficient for extremely large firms to design and implement the necessary internal gymnastics, and amortize that labor cost over a large amount of business. Smaller firms still have to do much of the same (at some point, 1 person is the minimum in a role), but can't spread it over as large a customer base. Or, to put it another way, it's easier to merge your way into larger profit margins in heavily regulated spaces.

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.
- specialist 4y ago
  Aka Govt administered cartelism. Which we already have. The trick is changing the governance (incentives, transparency, accountability) to favor people over corporations (and finance). Perhaps one step would be to stop thinking of corporations are superpersons, deserving of superrights. Instead, we could charter corporations and stipulate that they serve the public good.

tshaddox 4y ago

I don’t think the commenter was talking about competition law (aka antitrust law), but rather lower level regulations concerning day to day operations. Stuff like food safety regulations, hours of service regulations for truck drivers, etc. I think many (but probably not all) of these regulations will tend to encourage consolidation simply by imposing an additional cost that benefits from economies of scale.

Meekro 4y ago

Starting a company in a regulated field is hard. With unregulated fields like most internet companies, you "just do it" -- as long as you pay your taxes, the government will pretty much leave you alone. In a regulated field, the hard part is not following the rules but merely trying to figure out what the rules are. People who haven't dealt with this are probably picturing something straightforward and readable like "thou shalt not put poison in the groundwater" but what you really get is thousands of pages of incomprehensible nonsense that you don't stand a chance of understanding on your own. There are law firms that can help with this, but now it's scary and expensive enough that the 18 year old founders will stay away. In purely unregulated fields like web hosting, there are tens of thousands of competitors because it's easy to create one. It's true that someone could go around buying up a bunch of them (and companies have done this), but even after they're done there are still thousands of competitors remaining. If a regulatory agency wrote couple thousand pages of rules for web hosts, many existing owners would probably sell their companies rather than embark of the emotionally draining task of trying to make sense of those rules. Ironically, as the number of competitors declines, the ones that remain will feel more free to abuse both employees and customers. This will lead to demands for more regulation, which reduces the number of competitors further, and so on it goes.

ethbr0 4y ago

Because understanding and satisfying regulations has a high minimum cost and scales slower than revenue. Consequently, in heavily regulated industries, it's more efficient for extremely large firms to design and implement the necessary internal gymnastics, and amortize that labor cost over a large amount of business. Smaller firms still have to do much of the same (at some point, 1 person is the minimum in a role), but can't spread it over as large a customer base. Or, to put it another way, it's easier to merge your way into larger profit margins in heavily regulated spaces.