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Link to Project Syndicat: Monopoly's New Era
Excerpt:
Economists saw the trend coming long ago. In the pursuit of profits, which was quite normal, companies embarked upon what was at first called Conglomeration. Meaning a company would think beyond the confines of its own single market and branch out into others. Like General Electric that went from generating electricity from steam powered generators to jet-engines.
Just like General Electric, at one time, they went even further. They looked at profit-potential, and if it was good, they tried to buy the company. That trend was heady for a few decades in America, until corporate chieftains began to understand that managing so many companies was a real pain. Like a fire-storm, the trend blazed and inevitably slowed and finally died out.
Only to be replaced by Market Integration. Which is very much the same theory, except that it takes very competitive markets and reduces the competition by Agglomeration. Larger companies buy out their smaller competition, then they take-over even their major competitors.
The market is not a Monopoly, but very certainly an Oligopoly. That is, a market with a limited number of major players and very high entry-costs.
Which inevitably produces "sticky-pricing" and, in effect, no real competition amongst the three, four or five that dominate the market - each with a weary-eye for the dominant company who actually "sets prices". Of course, who pays for those oligopolistic profits?
You and me, and all the other consumers ...
___________________________________
Excerpt:
For 200 years, there have been two schools of thought about what determines the distribution of income – and how the economy functions.
One, emanating from Adam Smith and nineteenth-century liberal economists, focuses on competitive markets. The other, cognizant of how Smith’s brand of liberalism leads to rapid concentration of wealth and income, takes as its starting point unfettered markets’ tendency toward monopoly. It is important to understand both, because our views about government policies and existing inequalities are shaped by which of the two schools of thought one believes provides a better description of reality.
For the nineteenth-century liberals and their latter-day acolytes, because markets are competitive, individuals’ returns are related to their social contributions – their “marginal product,” in the language of economists.
Capitalists are rewarded for saving rather than consuming – for their abstinence, in the words of Nassau Senior, one of my predecessors in the Drummond Professorship of Political Economy at Oxford. Differences in income were then related to their ownership of “assets” – human and financial capital. Scholars of inequality thus focused on the determinants of the distribution of assets, including how they are passed on across generations.
The second school of thought takes as its starting point “power,” including the ability to exercise monopoly control or, in labor markets, to assert authority over workers. Scholars in this area have focused on what gives rise to power, how it is maintained and strengthened, and other features that may prevent markets from being competitive. Work on exploitation arising from asymmetries of information is an important example.
In the West in the post-World War II era, the liberal school of thought has dominated. Yet, as inequality has widened and concerns about it have grown, the competitive school, viewing individual returns in terms of marginal product, has become increasingly unable to explain how the economy works. So, today, the second school of thought is ascendant.
Economists saw the trend coming long ago. In the pursuit of profits, which was quite normal, companies embarked upon what was at first called Conglomeration. Meaning a company would think beyond the confines of its own single market and branch out into others. Like General Electric that went from generating electricity from steam powered generators to jet-engines.
Just like General Electric, at one time, they went even further. They looked at profit-potential, and if it was good, they tried to buy the company. That trend was heady for a few decades in America, until corporate chieftains began to understand that managing so many companies was a real pain. Like a fire-storm, the trend blazed and inevitably slowed and finally died out.
Only to be replaced by Market Integration. Which is very much the same theory, except that it takes very competitive markets and reduces the competition by Agglomeration. Larger companies buy out their smaller competition, then they take-over even their major competitors.
The market is not a Monopoly, but very certainly an Oligopoly. That is, a market with a limited number of major players and very high entry-costs.
Which inevitably produces "sticky-pricing" and, in effect, no real competition amongst the three, four or five that dominate the market - each with a weary-eye for the dominant company who actually "sets prices". Of course, who pays for those oligopolistic profits?
You and me, and all the other consumers ...
___________________________________