Massachusetts Daily Collegian

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A free and responsible press serving the UMass community since 1890

Massachusetts Daily Collegian

A free and responsible press serving the UMass community since 1890

Massachusetts Daily Collegian

America’s growing problem with monopolies

Mike Mozart/Flickr)
(Mike Mozart/Flickr)

AT&T made headlines last week when they announced a planned purchase of Time Warner for the sum of $85.4 billion. Almost as soon as the news broke, politicians on both sides of the aisle lined up to oppose the merger, and that is a very good sign.

For the last few decades, we have seen a troubling concentration of market power in dozens of industries. Since the 1970s, large companies (defined as firms with 1,000 or more employees) have doubled in number, while small businesses numbers have increased by less than half, according to the Census Bureau. Almost half of all American workers now work for large companies, a number that stood at under 40 percent just a few decades ago.

The big problem with this concentration of power is that it fundamentally weakens our capitalist system. Since the 1980s, the business startup rate has been in a steep decline, according to research from FiveThirtyEight. With fewer new businesses entering the market every year, competition continues to fall, along with the need for large corporations to innovate and keep prices down. The end result in all of this is a major loss for the average consumer.

Any introductory economics class will teach you that the bedrock of capitalism is the idea of supply and demand, which relies on the assumption of competition within an economy. A lack of competition in the economy leads to monopolies, which are illegal in the United States under the Sherman Antitrust Act.

While very few true monopolies (which are defined as industries with just one supplier) ever come into existence, that does not mean consumers are not regularly hurt by monopolistic practices. That is because we have a growing problem with oligopolies, which are essentially industries with a small amount of suppliers that can exert overwhelming power on the market.

According to a study by the executive branch’s Council of Economic Advisers, the majority of American industries have experienced a significant amount of market power concentration in the last 15 years.

However, not everyone thinks this concentration is a bad thing for the economy. Defenders of this trend argue that consumers will actually benefit from increased efficiency.

On the surface, that really isn’t a bad argument. This is because of the theory of “Economies of Scale”, which argues that as companies grow and produce more products, the factors of production can be streamlined, reducing costs and, therefore, reducing prices to the consumer.

But does this actually happen in the real economy? The Federal Reserve Board recently released a study titled “Evidence for the Effects of Mergers on Market Power and Efficiency”. The study found that, after a merger, price markups tend to go up, and that worker efficiency does not increase in most cases. The end result is simply artificially higher prices for consumers, with fewer alternatives.

So much for the economies of scale.

In the case of the AT&T and Time Warner deal, the potential negative effects for consumers are obvious. Since AT&T already owns DirecTV, it would be very easy to use this merger to restrict access from rival cable companies in favor of channels that Time Warner controls, such as TBS, TNT, CNN and HBO. This would allow AT&T to charge incredibly high costs for access (which would raise your cable bill), or simply pull those channels from every platform but DirecTV, forcing customers to switch.

“It aims to concentrate far too much market, communications and political power in one corporation, threatening to impede the free flow of information, undermine the integrity of the Internet, raise consumer prices and further corrupt our politics,” said Robert Weissman, president of the non-partisan advocacy group Public Citizen. “This is not a proposal that can be fixed with tweaks, divestitures or conduct agreements. Antitrust authorities should reject this merger proposal out of hand.”

Luckily, both sides of the political spectrum seem to be realizing that unhealthy amounts of mega-mergers are bad for both the average consumer and for the capitalist system as a whole. Still, antitrust authorities need to be doing more about the growing concentration of power in the American economy. Stopping the AT&T/Time Warner merger would be a big step in the right direction.

Matt Heffler is a Collegian columnist and can be reached at [email protected].

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    PaulApr 24, 2018 at 12:38 am

    The worrying thing is that ATT would even think it was OK. This shows that they are seeking to recreate their former, universally hated monopoly. Ethics are absent at the top.
    It’s a puzzle to me how a corporation can maintain an obnoxious culture over generations. It’s like as if the old guard before they die call in the young successors and on their death bed reveal the secret of how to piss off all their customers

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