Economics
Concentration of Economic Power

Concentration of Economic Power ... a post by Peter Burgess on LinkedIn Pulse

Burgess COMMENTARY

Peter Burgess

Concentration of Economic Power

Towards the end of 2015 we got the news that DuPont and Dow Chemical were going to merge into a single company and then split into three companies. On the face of it, two huge companies becoming three rather more modestly sized companies sounds like progress towards a little bit more competition. But, of course, it is nothing of the sort.

With DuPont and Dow Chemical being separate companies they competed tooth and nail over all of their product lines. According to conventional economic theory, efficient competition is good for the consumer. Business behavior seems to confirm that this is true, because most successful (that is highly profitable) companies have managed to arrange their market position so that they have little or no competition. Of course, this is what DuPont and Dow Chemical are doing in this case.

With the merger and the subsequent split, there will be three multi-billion dollar companies rather than six or more not quite so large company units doing this business. Based in the 2014 numbers the three new companies will look something like this:

• A new material sciences company that will have a combined revenue of more than $50 billion and serve the packaging, transportation and infrastructure industries.

• A new agricultural company that will have a combined revenue of more than $19 billion selling seed and crop protection chemicals; and

• A new specialty products company will have a combined revenue of more than $13 billion and sell materials to the electronics and communications industries as well as to the safety and protection sectors.

Yes ... there are other huge companies in these sectors so these three companies will not be outright monopolies in their respective market segments ... but if my economics training serves me well ... a well managed oligopoly results in most of the benefits of a monopoly anyway.

My impression is that regulators today have nowhere near the commitment to competitive markets that was the norm 40 odd years ago. Maybe it is because the idea of a competitive market is now defined more and more by 'law' rather than by economics. I would argue that 'law' can be adjusted to suit those that help elect the politicians ... but nothing actually will change the way economics actually behaves.

Concentration of power has been going on throughout my adult life (about 50 years) and shows signs of accelerating rather than being brought under control. This is not good. It enables the value of companies to go up, but at the expense of society and the environment going down. Not good.