More on business concentration

Matt Stoller on business concentration in agriculture in the US

The monopoly problem farmers face is really bad. On the input side they must deal with equipment producer John Deere, fertilizer giants CF Industries and Nutrien, and seed/chemical goliaths Bayer/Monsanto, among others. On the other side, they face giant buyers like ADM, Bunge, Cargill and Louis Dreyfuss, who in turn sell to large supermarket chains like Walmart and Kroger, and broadliners Sysco and U.S. Foods who sell to restaurants, institutional facilities, and food service giants. It’s consolidation all the way up and down the chain... Corteva and Syngenta have essentially been paying distributors not to carry rival, cheaper products, so they can maintain higher prices. This is done under the veil of “loyalty” programs to dealers, but it’s a way of blocking competition and keeping prices high.

This oped by the FTC Chairperson, Lina Khan, describes the "loyalty" program in an oped

Companies like Syngenta and Corteva are in the business of inventing new active ingredients for pesticides. Each time they do, they get to patent that invention. A patent entitles an inventor to a 20-year period where only they are allowed to sell the invention. But there’s a compromise: Once the patent expires, anyone is free to bring a generic version into the market... Syngenta and Corteva weren’t satisfied with this compromise. They wanted to keep raking in big profits even after the patents expired. To do that, our lawsuit alleges, each company plotted to cut farmers off from cheaper generic alternatives. In general, manufacturers don’t sell pesticides directly to farmers. They sell to distributors. Syngenta and Corteva realized that these distributors were a potential choke point. So they each launched “loyalty programs” in which distributors who bought their products would receive large payments, styled as a rebate. The catch: If those middlemen distribute too many generic pesticides, they don’t get the money. In other words, distributors get paid to exclude generics... Distributors don’t want to miss the payments, so they go along with the program. After all, it doesn’t hurt them to spend more on brand-name pesticides, because they get to pass those costs on to retailers and, ultimately, to farmers. With distributors under-stocking generics, farmers end up having little choice but to buy Syngenta and Corteva. And here is the payoff to the whole scheme: Because farmers are locked into buying their stuff, Syngenta and Corteva can keep charging inflated prices, as if their products were still under patent. The pesticide giants can make more profits by blocking rival products from the market than by competing with them.

This US Department of Defence report is a stunning summary of the shocking level of business concentration in the defense industrial base,

Since the 1990s, the defense sector has consolidated substantially, transitioning from 51 to 5 aerospace and defense prime contractors. As a result, DoD is increasingly reliant on a small number of contractors for critical defense capabilities. Consolidations that reduce required capability and capacity and the depth of competition would have serious consequences for national security. Over approximately the last three decades, the number of suppliers in major weapons system categories has declined substantially: tactical missile suppliers have declined from 13 to 3, fixed-wing aircraft suppliers declined from 8 to 3, and satellite suppliers have halved from 8 to 4. Today, 90% of missiles come from 3 sources.

This table captures the state of business concentration across product categories.

This captures the trajectory of consolidation in the solid rocket motor production industry.

As I have blogged earlier, business concentration is an inexorable dynamic emerging from the features of unfettered (American-style) capitalism. Quite apart from the innate nature of certain businesses like those in technology which enjoy virtually unlimited increasing returns to scale, there is the more pernicious issue of capture of rule-making by the large corporate interests.  This can be controlled only through active regulation and not allowing firms to grow too big.