The Costs of Corporate Consolidation
One of the biggest drivers of many of our societal ills comes from irresponsible corporations wielding too much power. These massive, multinational conglomerates have the resources to make anticompetitive acquisitions, and they are doing this more and more.
These mergers limit competition, allowing these companies to raise prices for consumers and lower wages for workers. These companies use their increased size to lobby governments to further crush any potential competitors or new entrants into markets. The result is that people and businesses are left with fewer options, less access to resources, and a stagnant economy.
What is an Anticompetitive Acquisition?
Anticompetitive acquisitions, also known as “killer acquisitions,” refer to acquisitions that are primarily aimed at eliminating or reducing competition in the market rather than achieving legitimate business objectives.
These acquisitions occur when a larger company acquires a smaller competitor to remove them from the market and reduce competition, rather than to expand its own business. The acquiring company may have no intention of using the target company’s assets but rather intends to eliminate the competition or reduce the competitive pressure in the market.
Anticompetitive acquisitions make already large conglomerates even larger, and further reduce the number of competitors in any given market. This leads to less competition, fewer choices for consumers, and more power for the companies that now dominate the market.
The growth of large conglomerates can also cause economic stagnation as it stifles innovation. Large corporations can adapt slowly, so new technologies don’t get embraced as quickly. This can also lead to less job growth and stagnation of wages for workers.
Healthy vs Killer Acquisitions
A healthy acquisition is a result of a company wanting to expand its business and market reach through the acquisition of another company. Such acquisitions usually aim to achieve strategic goals like gaining new technology, accessing new markets, diversifying product offerings, or increasing economies of scale.
Oftentimes, the economies of scale do result in lower prices and can actually benefit consumers, provided healthy competition remains.
In contrast, an anticompetitive acquisition, or “killer acquisition,” is focused on removing a competitor from the market rather than expanding the acquiring company’s business. The acquiring company may have no intention of using the target company’s assets but rather intends to eliminate the competition or reduce the competitive pressure in the market.
To determine whether an acquisition is anti-competitive or not, regulatory authorities examine a range of factors, including the market share of the acquiring company, the impact on competition in the relevant market, and the likelihood of anticompetitive effects.
It can be tricky, if not impossible, to understand if an acquisition helps or harms consumers when it is taking place. The specific facts and circumstances of each case will affect how constructive the acquisition is.
Anticompetitive Acquisitions Harm Society
Corporate acquisitions harm society in many ways. They give more and more power to fewer and fewer people, who can then use that power to exploit employees and customers more and more. Traditional economics rely on government intervention to keep what amounts to a monopoly or duopoly in check. Unfortunately, it’s clear that the government is broken, so that is out.
One of the biggest drawbacks to anticompetitive acquisitions is that they stifle competition and limit choices for consumers. As larger companies become even larger, they can use their size to stifle competition and drive out potential competitors or new entrants into the market.
When there are fewer competitors, prices tend to be higher because companies aren’t forced to compete on price or quality. Market consolidation can lead to higher prices for consumers, as well as fewer options in terms of products and services.
While companies with less competition can charge customers more, they can pay employees less. Larger companies with fewer competitors often mean a decrease in wages for workers, as companies no longer need to offer competitive salaries to attract and retain employees.
The Tech Worker Antitrust Lawsuit
In 2010, the U.S. Department of Justice launched an investigation into allegations that several major tech companies, including Google, Apple, Intel, and Adobe, had made secret agreements not to poach each other’s employees. The companies were accused of colluding to keep employee wages down by not offering competitive job offers to employees of other companies.
The investigation led to a class-action lawsuit filed by a group of tech workers, which accused the companies of violating antitrust laws and suppressing employee wages. In 2015, the companies settled the lawsuit for $415 million, without admitting any wrongdoing. Par for the course, nobody admitted anything, and nobody went to jail.
The case highlighted the potential harm that collusion and anti-competitive agreements can have on employees, as well as on consumers.
By limiting competition for workers, the companies suppressed wages and restricted employee mobility, ultimately harming innovation and the economy as a whole.
Screwing over employees is clearly bad for employees, the economy, and by extension society at large.
But it did benefit investors by making the companies just a teensy bit more profitable.
Collusion and Price Fixing
Both collusion and price fixing can harm consumers by reducing competition and increasing prices. Collusion occurs when businesses work together to limit competition, typically through secret agreements or coordinated actions. Price fixing is a specific type of collusion in which businesses agree to set prices at a certain level, rather than allowing prices to be determined by market forces.
Examples of Price Fixing
- The Apple e-books case: In 2013, the Department of Justice accused Apple of conspiring with several major book publishers to fix prices for e-books. Apple went to trial and was ultimately found guilty of working with publishers to adopt a so-called “agency model” for e-book sales, where the publishers would set the price of e-books and Apple would take a 30% commission on each sale. This was seen as an attempt to eliminate competition from Amazon, which had been selling e-books at a discount. The company was ordered to pay $450 million in damages but obs nobody went to jail.
- The Airline price-fixing case: In 2015, four major airlines – American, Delta, Southwest, and United – agreed to pay $22 million to settle allegations that they had colluded to fix prices for airfares. The airlines were accused of coordinating their capacity and pricing to limit competition and maintain higher prices for customers.
- The LCD price-fixing case: In 2012, several major manufacturers of liquid crystal display (LCD) panels, including LG Display and Sharp, were found to have colluded to fix prices for the panels used in televisions, laptops, and other devices. The companies agreed to pay more than $1.1 billion in fines to settle the case.
- The Auto parts price-fixing case: In 2013, several major auto parts manufacturers, including Denso, Yazaki, and Furukawa Electric, were found to have colluded to fix prices for parts such as air conditioning systems and wire harnesses. The companies agreed to pay more than $1.6 billion in fines to settle the case.
- The Chicken price-fixing case: In 2019, several major chicken producers, including Tyson Foods and Pilgrim’s Pride, were accused of conspiring to fix prices for broiler chickens. The companies were alleged to have coordinated their production and pricing to limit competition and inflate prices for consumers. The case is still ongoing, but several companies have already agreed to pay hundreds of millions of dollars in settlements.
- The Libor scandal: Several major banks, including Barclays, JPMorgan Chase, and Citigroup, were found to have colluded to manipulate the London Interbank Offered Rate (Libor), a key benchmark for interest rates around the world. The banks agreed to submit false rates to the organization that sets Libor, to benefit their trading positions and boost their profits.
These are just some of the most egregious examples of how market concentration allows companies to work together to screw over their customers.
The growth of large conglomerates can also stifle innovation, leading to an economy that is slow to adopt new technologies and ideas. When market consolidation occurs, the dominant firms are likely to absorb smaller rivals or drive them out of business, reducing competition and limiting the potential for market disruption. This can lead to market stagnation and limit opportunities for new businesses and entrepreneurs to enter the market.
Entrenched businesses are more likely to resist the introduction of new technologies that could disrupt their existing business model, instead relying on inertia to maintain their dominance. Large companies also have the resources to limit competition through legal means, such as patenting technologies, enforcing their intellectual property rights, and paying the government to make life difficult for competitors.
Automakers, big oil, and electric cars
Auto manufacturers and oil companies have been accused of working together to prevent progress on electric cars. One famous example is the documentary film “Who Killed the Electric Car?” which examined the early development and subsequent discontinuation of General Motors’ EV1 electric car.
According to the film, the auto manufacturers and oil companies had a vested interest in maintaining the status quo of gasoline-powered cars, as they were the dominant market force at the time. The companies allegedly lobbied against government support for electric cars, as well as worked to undermine the reputation of electric cars by spreading misinformation about their performance and safety.
In addition, the film argues that auto manufacturers made it difficult for consumers to purchase electric cars by only offering them through leasing programs, limiting the availability of charging infrastructure, and eventually recalling and crushing the electric cars that were already on the road.
While the exact nature and extent of collusion between auto manufacturers and oil companies are still debated, it is clear that progress on electric cars was hindered for many years. One of the reasons so many politicians are out to get Elon Musk is because he went against the entrenched oil and auto lobby to push innovation.
Other Examples of Big Business holding back innovation
While that is perhaps the most damming example of entrenched powers actively holding back progress to make themselves richer at our expense, it’s unfortunately not the only case.
There have been several instances throughout history where entrenched powers have been accused of holding back innovation, either for their benefit or to maintain the status quo. Here are a few examples:
- The pharmaceutical industry has been accused of stifling innovation in the development of new drugs by focusing on treatments for chronic conditions rather than cures. Critics argue that this approach is more profitable for the industry in the long run, as patients will continue to rely on their products for years or even decades.
- The music industry has been accused of resisting technological change, particularly in the shift from physical media like CDs to digital music downloads and streaming. The industry was slow to adopt these new technologies, and when they did, they often did so in ways that were restrictive to consumers and stifled innovation from new players.
- The taxi industry has been accused of resisting innovation in the form of ride-sharing services like Uber and Lyft. Traditional taxi companies and drivers have lobbied against these services, arguing that they are unsafe and unregulated. However, many see this as an attempt to protect their market share and prevent competition from disrupting their business model.
- The fossil fuel industry has been accused of hindering progress in the development of renewable energy sources, either by denying the existence of climate change or by lobbying against government support for clean energy. Critics argue that the industry is attempting to protect its interests, even at the expense of the environment and the global economy.
These are just a few examples of how entrenched powers can hold back innovation in different industries. As technology advances and societal values evolve, the most corrupt and greedy among us will always want to protect what they have, even if it hurts everyone else.
Perhaps the most insidious aspect of anticompetitive acquisitions is that they consolidate power in fewer and fewer hands. This vicious cycle makes everything worse for everyone but a select few. It runs counter to the common good, perpetuates inequality, and gives more and more power to the worst kinds of people.
Monopolies and Duopolies
Monopolies occur when a single company dominates a market, with little or no competition from other firms. This can lead to higher prices, lower-quality products, and reduced innovation. Monopolies can also limit consumer choice, as consumers may have no alternative options to turn to.
Duopolies, on the other hand, occur when there are only two dominant firms in a market. While this can lead to more intense competition between the two firms, it can also result in similar harms as monopolies, such as higher prices and reduced innovation. Additionally, duopolies can make it difficult for new entrants and smaller businesses to enter the market and compete, further limiting consumer choice.
The harm caused by monopolies and duopolies extends beyond the economic realm. These market structures can also have negative social and political consequences.
For example, a single dominant firm in a market can wield significant political power, influencing public policy and potentially stifling competition through lobbying and other means. This can lead to a lack of accountability and transparency in the market, which can harm democratic processes and erode public trust in government.
In theory, antitrust laws are designed to prevent firms from engaging in anticompetitive behavior, including collusion or other practices that could create a duopoly. But the government is broken.
A monopoly becomes illegal when it is created or maintained through anti-competitive practices that harm consumers and restrict competition. Under antitrust law, monopolies are considered harmful because they allow a single company to control a market, set prices, and limit consumer choice.
For example, a company might acquire a dominant position in a market by engaging in anticompetitive practices such as price fixing, collusion, exclusive dealing, or predatory pricing. Alternatively, a company might use its market power to engage in conduct that harms competition, such as tying agreements, refusals to deal with, or monopolization of a key resource. The abuse of the arcane legal system is also a form of illegal monopoly.
In theory, if a monopoly is found to violate antitrust laws, the government can take legal action to break it up or force the company to change its practices. While not something our modern pretend regulators do, these actions can include divestitures, structural remedies, or behavioral remedies such as injunctions or fines.
Ultimately, the stated goal of antitrust law is to promote competition and protect consumers from the harmful effects of market power. The reality is that the powers that be prevent any kind of accountability and do whatever they can to protect the interests of the wealthy
Growth at Any cost
One of the main drivers of these anti-competitive acquisitions is Capitalisms’s insatiable appetite for growth at any cost. Because corporate boards and investors prioritize short-term profits, companies are often motivated to gain a larger market share by any means necessary.
This can lead to mergers and acquisitions that consolidate market power and reduce competition. Rather than investing in innovation and research, or employee training and empowerment, strategies that might take several quarters to pay off, these short-term obsessed “leaders” force their companies to take the easy way out and try to choke out competition. They can boost a stock price short-term, even if it hurts the company and society.
Are Business leaders Psychopaths?
Why do corporate leaders harm society? Don’t they care about other people? How much money do they need? Are they really that greedy?
We might be able to explain this apparent indifference to societal suffering with the theory that those who make it to the top of corporate leadership are psychopaths who don’t care about other human beings.
Some psychologists and experts have suggested that certain traits associated with psychopathies, such as a lack of empathy, charm, and the ability to manipulate others, can be beneficial in the business world, particularly in highly competitive environments.
The idea that psychopaths may be overrepresented in positions of power, including in the business world, is not a new concept. The term “psychopath” is often used interchangeably with “sociopath” and “antisocial personality disorder.”
This theory remains controversial, and not all experts agree that there is a direct link between psychopathy and success in business.
That said, studies have shown that some traits associated with psychopathy can be beneficial in the business world. And at least some successful business leaders and entrepreneurs likely possess traits such as empathy, creativity, and a sense of social responsibility.
Ultimately, the idea that the most powerful people in business are psychopaths is a contentious one, and further research is needed to fully understand the relationship between psychopathy and success in the business world.
But it would explain a lot…
Fighting Back Against Anticompetitive Acquisitions
By definition, anticompetitive acquisitions are harmful to consumers and the economy as a whole. Anyone resisting the most powerful companies in America is up against powerful, entrenched powers, but fighting back is possible.
Several strategies can help reduce market consolidation.
Companies themselves can take steps to promote competition and avoid engaging in anticompetitive practices. This includes being transparent about business practices and engaging in fair competition, as well as avoiding predatory pricing and other practices that harm competitors.
Unfortunately, that is probably not going to work unless there are negative repercussions for bad behavior and rewards for good behavior.
One approach to promoting competition is to strengthen antitrust laws and regulations. This includes providing more resources for antitrust agencies to investigate and prosecute cases, as well as increasing penalties for companies found guilty of antitrust violations.
What Is Antitrust?
Antitrust refers to a set of laws and regulations designed to promote competition and prevent anti-competitive practices in the marketplace. Antitrust laws aim to protect consumers from the negative effects of monopolies.
The goal of antitrust laws is to promote competition and ensure that companies compete on the merits of their products and services, rather than relying on anti-competitive practices to maintain their market position.
Antitrust laws are enforced by regulatory agencies such as the U.S. Federal Trade Commission (FTC) and the Department of Justice (DOJ) in the United States. These agencies are responsible for investigating and prosecuting companies that engage in anticompetitive practices, such as price-fixing, market allocation, and monopolization.
Unfortunately, these agencies are not into holding anyone accountable – it’s just too hard, the rewards too meager, and they are chickenshits.
Both Democrats and Republicans Answer to Big Business
As Jesse Eisinger explains in The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives – over the past few decades, antitrust enforcement in the United States has become increasingly lax, with regulators failing to pursue cases against companies engaged in anti-competitive behavior.
This has been due in large part to the influence of money in politics, with both Republicans and Democrats being owned by big business. This is not necessarily what Eisinger says, it’s just the clear reality.
Corruption is the only issue with bipartisan agreement.
The media likes to portray democrats and republicans as hated enemies. Loud politicians and media figures push this anger to distract us all from the fact that they are both on the same team – the screwing us over the team.
Companies with large lobbying budgets have been able to influence lawmakers and regulatory agencies to be more lenient on antitrust enforcement. In addition, the revolving door between government and industry has allowed for the capture of regulatory agencies by the very companies they are supposed to regulate.
Another factor is the ineptness and malfeasance of regulatory agencies tasked with enforcing antitrust laws. Many of these agencies have been understaffed and underfunded, and have not been able to keep up with the rapid pace of change in the tech industry, where many of the largest antitrust cases have arisen.
This reluctance to pursue antitrust cases has encouraged anticompetitive behavior. Large companies have been able to acquire smaller competitors without fear of regulatory intervention, which has led to consolidation and reduced competition in many markets.
To promote competition and protect consumers, it is crucial that regulatory agencies are adequately staffed and funded, and that there is greater transparency and accountability in the regulatory process.
This can help to ensure that companies are held accountable for anticompetitive behavior and that consumers can benefit from a truly competitive marketplace. Ultimately, ending the influence of big business in Washington is essential to preserving fair competition and protecting consumers from corporate abuse.
Don’t hold your breath…
Shakedown or Solution?
Politicians Use Antitrust Threats to Line their pockets
It’s no secret that political campaigns require significant amounts of funding and that political candidates often rely on donations from businesses and other wealthy donors to finance their campaigns. However, some politicians have been accused of using the threat of antitrust enforcement as a way to essentially extort money from businesses.
The logic behind this approach is simple: businesses that are concerned about potential antitrust scrutiny may be more likely to donate money to politicians who they perceive as sympathetic to their interests. By suggesting that antitrust enforcement may be forthcoming, politicians can create a sense of urgency among businesses, leading them to make larger donations or to contribute more frequently.
This practice has been criticized by some as a form of corruption, as it can create the appearance that politicians are using their positions of power to extract money from businesses. It can also create a perception that antitrust enforcement is being used as a tool to punish businesses that are perceived as unfriendly or uncooperative with politicians.
While businesses and politicians have the right to support candidates who they believe will best represent their interests, this support mustn’t be contingent on political favors or the promise of leniency in antitrust enforcement.
Antitrust Lawsuit Against Google
Perhaps a belated attempt at consumer protection, but more likely a result of Google just not giving enough donations, the Feds initiated an antitrust suit against Google.
While the outcome of the case remains uncertain, some experts have expressed doubt that it will have a significant positive impact on consumers, particularly given the long timelines and the difficulty of proving antitrust violations in the tech industry.
Like most big lawsuits, the Google antitrust case is expected to drag on for years, cost millions of dollars in legal fees, and potentially result in significant fines or changes to its business practices.
Just another massive waste of money and energy.
The Google antitrust case is not just a legal issue; it is also a political one.
Politicians from both parties have seized on the case as an opportunity to solicit donations from businesses that are affected by the investigation.
- In 2012, the Federal Trade Commission (FTC) closed an antitrust investigation into Google without taking any enforcement action, despite evidence that Google had engaged in anti-competitive practices. Some critics speculated that the decision may have been influenced by the fact that Google had spent millions of dollars lobbying Congress and the FTC in the years leading up to the investigation.
- In 2019, the CEO of Google, Sundar Pichai, made a $5,600 donation to the re-election campaign of Senator Lindsey Graham, who chairs the Senate Judiciary Committee that oversees antitrust issues.
- In 2020, news reports revealed that Google had made significant donations to think tanks and academic institutions that had written articles or research papers supportive of the company’s position on antitrust issues. For example, Google donated $2.2 million to the New America Foundation, a think tank that had previously received funding from the company and had published a favorable article about Google’s antitrust practices.
In some cases, politicians have used the threat of antitrust enforcement to pressure businesses into making donations or supporting their campaigns. This trend is part of a broader trend of money playing an increasingly significant role in politics, with businesses and wealthy individuals wielding more influence than ever before.
The outcome of the Google case may be influenced as much by political pressure as by legal arguments, further highlighting the need for reform to address the role of money in politics.
About the Case
The Google antitrust case refers to a series of legal challenges and investigations that have been launched against Google by regulatory bodies around the world, over concerns that the company may be engaging in anticompetitive behavior. Here’s a brief overview of the key issues at play:
- Dominance in search: One of the key areas of concern is Google’s dominance in the search engine market. Critics argue that Google’s search algorithm favors its products and services over those of competitors, giving the company an unfair advantage.
- Advertising practices: Google is also under scrutiny for its advertising practices, with some regulators alleging that the company engages in anticompetitive behavior by restricting competitors’ access to its advertising platform.
- Platform dominance: Google’s dominance in various other online platforms, including mobile operating systems and video sharing, has also been called into question. Some critics argue that the company’s position in these markets gives it an unfair advantage and stifles competition.
- Data collection and privacy: Finally, some regulators have raised concerns about Google’s data collection practices and their impact on user privacy.
If found guilty of antitrust violations, Google could be forced to pay significant fines, change its business practices, or even be broken up into smaller companies. The outcome of the various legal challenges against Google remains uncertain.
It will likely depend on how much Google pays out compared to its competitors.
Another approach is to encourage competition through innovation and the development of new technologies. This can be achieved through government support for research and development, as well as through initiatives that promote entrepreneurship and small business growth.
Fortunately, we have alternatives to the government in terms of preventing anticompetitive acquisitions and market consolidation.
Government is incapable of controlling these massive corporations. And they will not be being transparent without pressure. Corporations need to be better for the world.
We need to force them to do with our wallets.
As consumers, we have the power to make an impact by supporting small, local businesses. We can also choose to buy from companies that prioritize environmental sustainability and ethical labor practices. We also need to push companies to be more transparent about how they treat their workers, their lobbying activity, and other activities that harm society.
Consumer education and activism play a role in fighting back against anticompetitive practices. By raising awareness of these issues and advocating for change, consumers can help to put pressure on companies to change their behavior.
When we are aware of our consumer choices, we can use our purchasing decisions to contribute to a better world.
A rule of thumb is to avoid international conglomerates.
Know your international conglomerates >>
Increased transparency by businesses can promote competition by making it easier for consumers and competitors to make informed decisions. When businesses are transparent about their practices, pricing, and other information, consumers and competitors are better able to understand the market and make informed choices. This can help to level the playing field and prevent monopolies or other anticompetitive behavior. Additionally, transparency can help to build trust with customers and improve overall business reputation, leading to greater success in the marketplace.
Overall, fighting back against anticompetitive acquisitions requires a multi-faceted approach that involves government, industry, and consumers. By working together to promote competition and protect against anticompetitive behavior, we can help to ensure a more fair and equitable marketplace for everyone.