Growth in monopoly threatens to destroy capitalism from within
When a fellow passenger posted video footage of Dr David Dao being forcibly dragged from an overbooked United Express flight, it prompted a storm of online outrage. How could any company treat its paying customers with such callous contempt and expect to get away with it? Yet after a token apology from the chief executive of parent company United Airlines, get away with it the carrier did. This PR catastrophe had virtually no effect either on United’s passenger numbers or on its stock price.
The case of Dr Dao is just one of myriad examples of the growing power of corporate monopoly cited in a fascinating new book by Jonathan Tepper and Denise Hearn – The Myth of Capitalism: Monopolies and the Death of Competition. In this case, passengers were more or less obliged to carry on using United, whatever they thought of the outrage, for lack of viable alternatives.
There are plenty of things wrong with modern-day capitalism, but one of them surely has to be the growing market power of a relatively small number of sectoral behemoths. Whatever industry you care to take, the degree of concentration has reached alarming proportions in recent decades, some of it brought about by mergers and acquisition, some by the so-called network effects of new technologies, but frequently simply by insurmountable regulatory barriers to entry. This shrinkage is most obviously found in the United States, but it appears equally true of the UK and the rest of Europe.
Seduced by the supposed benefit to consumers of economies of scale, competition regulators have sanctioned unprecedented levels of merger activity. Worse, competition has come to be viewed globally rather than nationally and regionally, encouraging the belief that economies need “champions” to compete adequately on the world stage. Tepper and Hearn convincingly argue that these trends are very much part of the wider story of low wages, fewer start-ups, poor levels of innovation, rising inequality and the decline of our regional towns and cities. As if to prove the point, along comes Amazon; after a year-long competition for the site of its new headquarters, Amazon chose not some rust-belt conurbation that could really have done with a lift, but two already commercially and politically dominant coastal cities – New York and Washington.
Recent research on market power – by among others the International Monetary Fund – has found a clear correlation between industrial concentration, rising prices, excessive profits and the declining share of labour in the economy.
Monopoly is of course the ultimate ambition of all business. Never believe an executive who tells you otherwise. As in the board game, killing the competition is one of the primary motivations. But taken to its logical conclusions it produces its own nemesis, a single winner that ends the game.
But here’s the really interesting question. If competition is dying, why is inflation so tame? Companies would surely use their monopolies to jack up prices if they could. Well, you might not have noticed it, but according to Jan Eeckhout of University College London, they have. His research shows that without rising market power, prices would actually have been falling, assuming that monetary policy had been kept constant. If he’s right, it explains another puzzle, which is the apparent inability of today’s technological revolution to generate noticeable increases in living standards. The benefits of progress are being counteracted by the effects of monopoly power.
The UK’S Competition and Markets Authority (CMA) recently published an “issues statement” on the proposed merger between Asda and Sainsbury’s to create Britain’s largest retailer. The marriage has been justified on the basis of the potential benefit to consumers from efficiency gains and the growing threat from online competition. The CMA must of course give these companies a fair hearing, but there can be no doubt about its eventual judgment; this kind of nonsense has already gone way too far and must be stopped.
Farewell to traditional TV?
Without fanfare earlier this year, the number of UK subscriptions to the three most popular online streaming services – Netflix, Amazon Prime and Sky’s Now TV – for the first time overtook subscriptions to traditional pay TV. From a standing start little more than six years ago, Netflix alone now has more than 9m UK subscribers, almost as many as Sky. More interesting still, viewing habits are shifting dramatically. Nearly a third of viewing time is now devoted to non-broadcast content, and among 16 to 35-year-olds, it’s more than a half. It’s hard to disagree with Netflix’s chief executive Reed Hastings that traditional, linear TV is on a highway to oblivion, disintermediated by the individualised on-demand content made possible by the internet.
Well, perhaps not quite; there will always be a market for real-time news and sport, and perhaps game shows such as I’m A Celebrity … which share some of the same characteristics as a big sports event. But for everything else? Just as people moved from radio to TV, they are now moving to the on-demand services of the internet. Technology is of course the great enabler, but one underappreciated factor in turbo-charging growth is, bizarrely, the financial crisis. This has made debt cheap as chips, enabling the likes of Netflix to spend freely on content, eclipsing the budgets of traditional public service broadcasters and even the big Hollywood studios.
How do traditional broadcasters such as the BBC, ITV and Channel 4 fight the onslaught? One idea floated last week by Sharon White, head of the UK communications regulator Ofcom, is that they come together to create a single on-demand platform – a kind of “Brit Player”, after the BBC’S iplayer. Freeview, where they clubbed together to create a digital multichannel TV platform to counter Sky, would be the model. Competition regulators might still have something to say, but it is that or death by a thousand cuts. Already we are seeing a similar siloed approach to the challenge of Netflix and Amazon in the US, with the likes of Disney, newly merged with Fox, expected imminently to pull content from the upstart platforms so it is exclusive to their own on-demand services.
A Herculean battle for subscribing viewers is in prospect. The good news in all this is that never before has the market for content been so buoyant. There is presumably a limit to the size of the binge-viewing market, but for the moment it is hard to see where it might be, creating a generational boom in content provision and the jobs it supports. Splendid news for Britain, which is an increasingly important player in these markets.
‘Whatever industry you care to take, the degree of concentration has reached alarming proportions in recent decades’
Proposed merger between Asda and Sainsbury’s has been justified on the basis of the potential benefit to consumers from efficiency gains and the growing threat from online competition