By: Dominik Piétron (D’Kart)
There is no doubt, market concentration has increased in the past decades. Large firms owe their expanding empires as much to technological progress as to ineffective antitrust legislation, excessive intellectual property protection and aggressive merger and acquisition strategies. Over the past 35 years more than one million merger and acquisition (M&A) deals have been completed globally (Khan/Vaheesan 2016). Mergers and acquisitions in 2021 saw the highest deal value in history. Intense lobbying by the patent community has been a major force driving the consolidation of market power, along with regulatory capture by large corporations. The vicious cycle of market power begetting political lobbying power has meant that the economic underworld of corporate rent-seeking is becoming legitimate, systematically contributing to rising income inequalities and power imbalances in the global economy.
The social and economic consequences of this concentration of economic power can no longer be ignored: Since ownership of companies and shares are very unevenly distributed, profits mostly end up in the pockets of owners, investors, and managers. Asset management firms holding many shares of corporations across the sector are driving listed companies to increase their returns and to follow aggressive M&As pursuing this goal. Powerful companies can increase their margins by forcing suppliers to decrease prices, controlling market access, and leveraging economies of scale. It is mainstream economic thinking that rising market power has led to extraordinary profits of powerful corporations, falling labour income shares, lower investments, and lower output.
This is particularly evident in the digital economy, in which platforms give rise to a new type of “monopsony” power. Due to their market power, Internet corporations such as Alphabet, Amazon, Apple, Meta but also smaller platform companies like Spotify or Booking have become the gatekeeper for company that wants to offer digital content, services, or products to consumers. Based on their power to control access to proprietary marketplaces they can define the market rules, prefer their own products and extract valuable market intelligence. They pressure their business users, dictate prices, influence their customers’ purchase decisions and even copy profitable products. Even niche platform companies such as Booking or Spotify employ opaque algorithms making it particularly difficult to supervise and regulate these empires. Driven by large venture capital funds, they invest large sums to subsidize their prices, prevent potential competition and consolidate their market position by buying up innovative newcomers…