Photo Source: https://www.mbda.gov/sites/mbda.gov/files/styles/scale_700w/public/migrated/inline-images/mergers.jpg?itok=XI0txLBL
What do Android, YouTube, and Waze have in common? They’re all owned by Google. In the wake of the CVS - Aetna merger, which will drastically remap the healthcare industry, a discussion of corporate consolidation is more pertinent than ever.
Corporate consolidation is the build up of companies into a single, larger entity through mergers. Many regulators have relaxed the once largely-used Sherman Antitrust Act, which prevented monopolies like Standard Oil in 1911. Due to this relaxation, the negative effects of corporate consolidation have returned, most importantly in relation to the reduction of competition.
When a few corporate conglomerates own the majority of market share in a product, they can set prices. Due to suppliers and size, larger corporations can handle smaller profit margins on a much wider variety of products, which creates barriers to entry for smaller businesses, who have to charge more to shoulder resource costs.
Corporate consolidation causes many sectors to be controlled by an oligopoly (only a few producers and sellers that control prices), which limits competition in pricing. The cable industry is the best example of the negative impact of corporate consolidation. Many subscribe to cable, but it can be hard to deal with lagging, glitching, and overpriced cable packages. Streaming can address this issue, but cable services remain controlled by a limited number of companies, thus limiting customers’ ability to switch providers when they encounter high prices or poor service.
This is where small business would traditionally step in to meet consumer demand. However, as The New York Times reports, the number of small business start-ups is on the decline. Ben Casselman writes, “Many economists say the answer could lie in the rising power of the biggest corporations, which they argue is stifling entrepreneurship by making it easier for incumbent businesses to swat away challengers — or else to swallow them before they become a serious threat.”
Some have called for more regulatory antitrust laws like the Sherman Antitrust Act to address the increasing number of oligopolies. However, corporations may be beyond control of even the government due deep pockets and an army of lobbyists.
If consumers want to increase competition and open opportunity for new start-ups, they need to throw their money behind small businesses and enjoy the customer focus these local business can provide.