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Market Concentration Is Threatening the US Economy (project-syndicate.org)
80 points by howard941 43 days ago | hide | past | web | favorite | 63 comments

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.

I think what it comes down to is the appropriate amount and type of regulation that suits the market. As market concentration happens, those corporations must necessarily become more regulated to ensure consumer choice and employee rights.

The less concentrated the market, the less regulation required because natural market forces will have larger impacts. Once a corporation reaches a significant size, they largely outgrow the market being able to influence them in a large way, hence the need for more (and stricter) regulation.

Monopolies, if well-regulated, aren't as evil as they seem.

Do you think monopolies like PG&E in California are well-regulated? If not, could you tell me why this isn't due to systemic difficulties in setting up a well-regulated monopoly?

EDIT: I should put my thesis in here: It is easy for regulatory capture to happen in the case of monopoly and regulator. I would also expect the monopoly plus regulator to perform more poorly than either a competitive company or a public entity.

Regulation generally is not the same as regulation specifically related to antitrust. You can create a well regulated monopoly where none of the regulations are designed to prevent negative effects of being a monopoly.

The hardest part of regulation is not erecting artificial barriers to entry.

There are a lot of examples where regulatory capture happens to ensure that a near monopoly can comfortably maintain its position, and it strangles competition from startups.

Target antitrust.

We want to benefit from efficiencies of scale while decreasing the size of every company's "moat". That is, consumers would benefit most if it was easy to start a competitor if/when the top bank/retailer/etc tried to take advantage of its position.

> 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.

That may explain Google search, but not e.g. Luxotica, which is a monopoly in eye-wear. I'm not sure how much of the centralization is of the "I go to the best provider for me" kind, vs. the "Katamari Damacy" style, but the former is only good for customer in the short term, and the latter not even then.

Free markets and democracies are good at a lot of things, but self preservation is not one of them - that has to be applied from "outside" the system, early and often.

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.

"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.

Preferred by the monopoly and nobody else, is what you mean, yes?

Which is to say it is against the will of the people,

Are you asserting that capitalists care about freedom and the will of the people?

Crony capitalists (what I would call mercantilists) certainly do not care about the will of the people. They are tyrants who hide behind a word they are corrupting.

However I will defend to the death my right to exchange goods with you. I'm assuming you and I are just normal citizens who don't control multi-billion dollar businesses?

I'm going to use the first definition of capitalist I found on google:

"a wealthy person who uses money to invest in trade and industry for profit in accordance with the principles of capitalism."

As we know there is a huge spectrum of investment strategies, from VCs to Bond holders etc.

Some capitalists like VCs, absolutely value market freedom, others likely don't, but it's too large a swatch of people to generalize by saying they don't care about economic freedom.

Which behavior is illegal? Consumers are choosing to patronize businesses that offer them the benefits of efficiencies of scale.

I am not sure of the current regulations but engine swapping in Sweden and other modifications were completely illegal since the 90s and basically what Americans consider to be normal and acceptable is flat out not allowed on the roads in Sweden by police or inspection authorities.

This means that 100% stock vehicles are in demand, and Volvo and Saab and BMW benefit heavily compared to a modified Jeep, which would make more sense for Sweden's enthusiasts

Sometimes. I'm totally unhappy with spectrum formerly time Warner. They're awful and I have no choice. I'm also super happy with my sewage and I have no choice. The danger is that we get de facto monopolies like Google and wind up paying $5 for a mouse click and we really have no other options.

I'm not sure it's fully from efficiency of scale, especially outside of manufacturing. What I keep seeing is using one's size to keep out newcomers as the most important factor. You have more patents and more lawyers and can accept financial losses longer on specific products to keep them out: products A and B subsidize C when C is threatened. And you can bundle multiple products into "special deals" the way a single-product producer can't. And there's the network effect that social networks use: you need more customers before you can get customers.

In short, economic bullying.

Since the early 80's I've watched Microsoft grow, and don't see it about raw merit at all. It's poker, not chess.

Amazon is the archetypal example. They didn’t litigate their way to dominance. Amazon is just better than all the mom-and-pop alternatives, and that is fueled by technology and scale. Wal-Mart is another example, except optimizing for price. Apple is another.

I'm mostly talking about after one gets dominant, not how they got dominant. Microsoft was already dominant in PC software by the late 1980's.

you're suggesting we optimize along a single axis of a (probably infinite) multidimensional system.

the simplistic retort would be that "value" condenses all that complexity down into a single metric, but we know how well optimizing for one metric works out. we get all kinds of distortions and mis-aligned incentives. we might even name that class of problems "externalities".

the corporate free lunch ain't free. bigness gets paid for by us little people being subjected to thousands of small cuts (decision short-circuiting caused by information assymetries, paying usurious fees on loans, etc.). don't fall for that duplicitous platitude.

I'm not suggesting we optimize along a single axis, I'm stating what the reality is. Short term, it makes sense for each individual to use Costco/Target/Walmart/Amazon/Google/Apple/BoA/Chase/Nordstroms/Trader Joes/Aldi/United/Delta/American/Hilton/Marriott/Home Depot/Lowes/AMC/Regal/P&G/J&J/Conagra/UPS/FedEx etc. These big organizations have achieved efficiencies of scale (and political clout) to be able to offer services at a price that others can't. Long term, we are ceding pricing power to fewer and fewer sellers (and buyers on the labor side), but I doubt people will stop and start giving business to the local retailer or bank or hardware store, if they still exist.

Obviously, I'm not talking about infrastructure monopolies as the consumer has little to no choice there between things like mobile/internet/electric/gas/water/sewer/waste removal providers.

but it also "makes sense" to patronize small and local businesses over large businesses if you care about anything (any other axis) other than just price (a single axis).

your argument is a form of reductio ad absurdum because you're saying your preferred option (buy from large corps) is the only smart and practical choice (so why consider anything else?). but people (like me) choose differently all the time.

with that said, yes, people do take that shortcut (limit choice to large corps) because it's less cognitive load in a world overloaded with moneyed, attention-seeking (self-)promotion, but that certainly doesn't mean it's the best or only choice given the plethora of considerations.

Monopolies are not beneficial for customers. They are always maximally beneficial to the monopolist, because customers have no choice.

Therefore, customers will be forced to always pay the maximum amount for a good, instead of being able to bargain for a lower price.

As capitalism is based on creating efficiencies of market through customer choice, I have to wonder why mercantilism is back in vogue with a new coat of paint.

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.

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.

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.

Minor nit. The Seven Sisters weren't all descended from Standard Oil of New Jersey although a number of them were.

Is that's the case then why don't companies voluntarily break up?

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.

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.

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.

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.

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.)

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.

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

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.

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.

> 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.

Its really difficult to compare. Healthcare is a big difference, if we relabeled health insurance as a tax, US tax rates would be very high.

The problem I have with this relabelling is that decent health care is largely dependent upon how rich/nice your employer is and it costs lots of money at the point of contact. Healthcare in the U.S. is not provided to citizens in a way that resembles a government program.

> Healthcare in the U.S. is not provided to citizens in a way that resembles a government program.

Except for the ~1/3 of Americans who get healthcare through one or more of the government programs (Medicare, Medicaid, VA, Tricare, etc.)

I fail to see what your point is. You believe the totality of all U.S. healthcare spending ought to be viewed as a tax because - using your statement - 1/3 of the people receive healthcare via a department of the federal government?

> I fail to see what your point is.

The point is exactly and only what the text of the comment said.

> You believe the totality of all U.S. healthcare spending ought to be viewed as a tax

No, I never said that. Nor, AFAICT, did anyone upthread. The claim rb808 made seems to be more "comparing tax rates between countries where there is a substantial difference in the extent to which essential services are provided through tax funded programs is of limited utility".

I think I may have upset you. I don't understand your original comment in the context it was made. From my perspective rb808 thinks that health care expenditures ought to be added to the U.S. tax computation to make comparisons to other OECD nations' tax rates. I don't agree with this for the reasons I stated.

As an aside I think if one doesn't view something as a tax then it shouldn't be added to the tax calculation. If one wants to say we are both taxed low and in return don't receive as much government services and so it balances out then have at it. I don't agree with that perspective either but it's a logical one to make.

If you agree with rb808 I wish you well in convincing others with your point of view.

As an aside, the parent comment appears to be a misplaced response to https://news.ycombinator.com/item?id=19382254

> I think I may have upset you.

It's probably best not to post your guesses about other people's emotions when they don't contribute to the discussion.

> I don't understand your original comment in the context it was made.

Clearly, and you keep trying to interpret it as a defense of (what I have already explained why I consider a misinterpretation of) rb808’s comment, even after I have explained both that I see your interpretation of his comment as wrong, and that my original comment was a tangent that didn't intend to defend his comment (whether as I interpret it or as you do) in the first place.

I know that you didn't say that. Hence the question. I didn't claim you said it. But rb808 sort of did claim this:

...if we relabeled health insurance as a tax, US tax rates would be very high...

Your original comment doesn't appear to be relevant or to add to the conversation to me because VA, DOD, Medicare, and Medicaid spending are already taken into account when computing tax rates. I really don't understand what you are getting at with your original comment. The healthcare expenditures you mentioned are already part of the calculation for the tax rate in the U.S. So there is nothing to add with regard to the programs you mentioned when making the comparison to OECD average tax rates.

> rb808's comment is that the totality of healthcare spending ought to be added to the tax percent when comparing tax rates amongst OECD countries.

rb808 does not say it ought to be. He says that the comparison is complicated, and that it would be different if it was added in, not that it should be added in. One could with more justification interpret him as describing a problem and noting the effect of one plausible method of attempting to resolve the problem, rather than claiming that that particular method is necessarily correct.

> Your original comment doesn't appear to be apt to me

That's because you are trying to view it as an argument in defense of the position you've read into rb808's post rather than a tangent responding only to the specific claim in your post that was quoted, from someone who doesn't even agree that the position you've read into rb808's post was likely even rb808's position and who, in any case, wasn't arguing in defense of any position, actual or inferred, posited in rb808's post.

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.

Let’s be honest, tax cuts may be bad policy, but it is not true that they haven’t been lowered for the average person. Rates are down, standard deduction is up.

SALT caps really screw a lot of people though. My effective federal tax rate is higher after the tax "cut" than it would have been under the previous tax laws.

It really depends on where you live. Some blue areas have had effective tax increases for a sizable chunk of the population.

I misspoke. The cuts have been mostly but not exclusively for the very rich. For instance, Reagan thought the tax on capital ought to be higher than the tax on labor. Now if a politician suggested this they'd be labeled a socialist by the Republican party.

United states is 26% tax to GDP. Australia is 27.8%. Switzerland is 27.8%[1]

Are those countries broken too?


The political system in the U.S. is broken from my perspective. It is not broken because tax rates are too low. That tax rates are low for the very wealthy is a symptom of the brokenness of the system. It is not the cause and I did not claim the U.S. has a broken system due to low taxation.


So what do you think a better tax system would look like?

Here's what I think:

- No corporate taxes - No income tax deductions - No income tax exemptions - Lower income tax rates across the board - Income tax rate is calculated by a continuous function based on your income - Such a function would be based on existing effective tax rates

Done correctly, such a reform would be much simpler, easier to deal with, and revenue neutral.

>>and revenue neutral.

Why is this a good thing? It seems that most people feel that the problem is twofold. 1- Middle and Lower class families feel like too much of their money is forced to pay for taxes or services that taxes could be used to provide and thus they're not getting a fair shake. 2- Rich people are able to navigate the complex legal codes relating to tax in such a way that they benefit by "not paying their fair share". This seems to be a growing sentiment in both wings (although conservatives tend to believe that everyone is taxed too heavily and have all sorts of varied solutions about how best to deal with wealth inequity)

If you created a revenue neutral system it doesn't seem like it really addresses the issue of wealth inequality. If someone believes the wealthy aren't paying their fair share, it would make sense that in a reformed system that's "better" you would increase revenue because you'd be gaining more from those at the top.

If revenue should increase, it's much easier to increase it by changing some constants in the function. Same applies if you think revenue should decrease, or if you think the taxes should be more progressive.

A simpler system benefits everyone: it's easier to comply with, it's easier to enforce, it's easier to change.

For instance, adding a negative income tax would be as easy as adding a negative offset to the function.

The fundamental title and premise of the article is quite inaccurate.


Clearly market concentration has been going DOWN worldwide since 1988. It's important to get your basics correct.

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.

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?


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.

Your link is talking about Market concentration in terms of total US imports and exports. It's possible for the HHI to be low in global terms if the US is importing/exporting to a variety of partners even if the production of goods is concentrated in few hands.

So yes, this measure of market concentration has been going down worldwide as globalization increased partnerships between countries, but in this case the HHI index you're referring to isn't measuring microeconomic domestic competition, it's talking about international competition on a macro scale, treating countries as the inputs.

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.

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.


Which hey, machine learning might make this work.

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