Growth in mo­nop­oly threat­ens to de­stroy cap­i­tal­ism from within

The Sunday Telegraph - Money & Business - - Business - JEREMY WARNER

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

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