Market power can push boundaries of societal change
What does it mean to have market power? In the business world, if your firm enjoys market power it has a dominant position in a market such that it is able virtually to determine how the market grows and how difficult entry by new competitors would be.
Some examples are well known. Think of Amazon, which started out as a seller of books on the internet and now sells virtually everything and, in addition produces movies and television programming. Or think of Google and their general search engine that swamps the other general search engines.
The concept of market power is not just applicable to businesses. Consider the state of California with a gross domestic product of $3.4 trillion. It is the largest sub-national economy in the world. If it were a sovereign nation it would rank as the world’s fifth largest economy, just behind Germany and ahead of India. That means the Golden State has economic muscle unlike any other state and, if it decides to do something big, its actions will have consequences for the rest of America and probably also its Mexican and Canadian neighbours.
One example is a recent law passed by the state legislature in Sacramento that will, starting in 2035, prohibit the sale of automobiles fuelled by gasoline. As the Governor of California said when signing the Bill, it was, “one of the most significant steps to the elimination of the tailpipe as we know it.”
Even more importantly, more than a dozen other states typically follow California’s lead when setting their own auto emissions standards. This means more than a third of the new car market in the U.S. will ban the sale of gasolinepowered vehicles by 2035.
Now, imagine that you head up a major car manufacturer – say General Motors, or Volkswagen or Toyota. In order to continue to sell your company’s products, you will have no choice but to make only electric vehicles by 2035. You will then phase out production of gasoline-powered vehicles as soon as feasible in order to optimize economies of scale. Ford has already committed itself to this goal and has begun delivery of its allelectric F-150 pickup.
I think of my dear friend Bill who doubts the reality of climate change. What will he do? Buy a new gasolinepowered truck and stockpile the parts that will become harder to find if repairs are eventually needed? Will he invest in a large storage tank to ensure a life-time supply of gasoline, given that the number of gas stations will begin to decline.
Achieving the 2035 target will not be easy for all automakers. The president of the Alliance for Automotive Innovation, which represents large U.S. and foreign automakers, said that automakers wanted to see more electric vehicles on the roads, but that California’s mandates would be “extremely challenging” to meet.” That’s the point, I think, of Gov. Gavin Newsom’s plan. It may be challenging, but they will do it if they want to remain in business.
The important thing to notice about this use of market power by California is that it sidetracks all of the protests by climate change deniers. And it might send a message to big industrial polluters that they had better come on board or face similar legislative action.
Maybe, at last, something significant is being done to forestall the destruction of our planet so that our children and grandchildren will be able to live a long and normal life. Market power has its advantages in the hands of enlightened leadership.