see also > big tech >markets now and then, valuation
ft.com 4/12/2021 Travel industry cries foul over unstoppable rise of Google
ft.com 4/12/2021 Quebec’s maple syrup cartel should be sweeter
ft.com 11/2021 Indra Nooyi: ‘Companies like ours are little republics’
economicsfromthetopdown.com/ 2021/09/29 How Dominant are Big US Corporations? Blair Fix
…”I recently had a lively Twitter debate with Jonathan Nitzan, Shimshon Bichler and Cory Doctorow1 about the future of big corporations in the United States. The debate was prompted by Doctorow’s piece ‘End of the line for Reaganomics’, which I reposted on capitalaspower.com. Doctorow argues that we may be witnessing a sea change in the way governments treat big corporations. Since the Reagan era, the US government has taken most of the teeth out of antitrust enforcement. The reason is not well known. In fact, I’m ashamed to admit that as a trained political economist, I didn’t learn this antitrust history in grad school. I learned it from Doctorow’s blog.
In Bork we trust : The antitrust story revolves around a judge named Robert Bork, who came up with a way to defang antitrust law by changing how it was interpreted. His 1978 book The Antitrust Paradox argued that antitrust law should be interpreted narrowly in terms of ‘consumer welfare’. And ‘consumer welfare’, in turn, meant one thing: low prices. To make an antitrust case, Bork argued that you needed to show that the offending firm had used its monopoly power to raise prices. Moreover, you needed to demonstrate that government intervention would do more good than harm. The paradox, according to Bork, was that by interfering in the ‘free market’, antitrust prosecution tended to protect inefficient firms from competition, and so led to higher prices.
From a scientific standpoint, Bork’s arguments are a flaming pile of garbage. But they are fiendishly clever ideology. Once judges were indoctrinated in the Borkian worldview, it became nearly impossible to successfully prosecute an antitrust case. The problem is simple: if a sector is monopolized, you cannot tell what the prices would be if the sector was not monopolized. Take, for example, big tech companies like Google and Facebook, which dominate the market for online advertisements. Do these companies use their power to set prices? Absolutely. Can we tell what advertising prices would be in a ‘competitive’ market? Absolutely not. …”…
blogs.imf.org 7-2021 Taming Market Power Could (also) Help Monetary Policy – by Romain Duval, Davide Furceri, and Marina M. Tavares
Some central banks are currently debating whether to tighten monetary policy to fight inflationary pressures, after having eased decisively in response to the COVID-19 shock. In making such decisions, central bankers have to consider how much businesses and consumers will respond. The structure of the financial system and the future expectations of consumers and businesses are key drivers of how effective monetary policy actions will be. Yet there’s another, overlooked, driver: corporate market power.
New IMF staff research has found ever larger and more powerful companies are making monetary policy a less potent tool for managing the economy in advanced economies, all else equal.
Market power has risen in many advanced economies and emerging market countries in recent years, as seen in price markups
“In the late 1930s, FDR’s Administration supercharged antitrust enforcement, increasing more than eightfold the number of cases brought in just two years. … In 1938, Franklin Delano Roosevelt gave a speech to Congress on curbing monopolies. …
Joe Biden reached back to that moment, and gave the most significant speech on monopolies by an American President since then. “Capitalism without competition isn’t capitalism,” he said. “It’s exploitation.” The speech very much paralleled how FDR framed his talk, emphasizing the importance of small business, workers, and consumers. Biden talked of the need to take on Big Tech, Big Pharma, and Big Ag, and even cited FDR’s call for an economic bill of rights, quoting Roosevelt’s goal of ensuring the “right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad.”
But far more important was Biden’s explicit criticism of the Chicago School, by name. “Forty years ago we chose the wrong path,” said Biden. “Following the misguided philosophy of people like Robert Bork, we pulled back on enforcing laws to promote competition. We are now forty years into the experiment of letting giant corporations accumulate more and more power.” …
mattstoller.substack.com/ 2020 Harvard Business Review Recommends Private Equity Focus on Monopolization All the easy profits are gone. Market power is the only piece left. by Matt Stoller
… “Increasingly, I suspect private equity is in crisis. Apollo is facing investor demands over subpar returns, private equity PR campaigns are going south, and the industry is desperately trying to get retail investors to replace the money they would have gotten from pension funds. Moreover, the return of ‘club deals,’ in which PE funds band together to hold down prices of portfolio firms, suggests that the market is at its peak.
So what’s left? Monopolization, or what they call building out an ‘ecosystem,’ to actually increase firm revenue. Here’s what they recommend. …
Now, it’s hard to figure out exactly what they mean. Buying in common means combining bargaining power, which is clearly about monopolization. But I suspect that this is basically what happened in the late 1960s when conglomerate owners couldn’t figure out how to drive any efficiencies out of owning a line of business that made missiles and a different line of business that made, say, tennis rackets. Conglomerates were in the end all about playing accounting games, aka financial engineering, and thus made no sense if you see wealth as the ability to create goods and services.
Conglomerate managers back then put forward a lot of jargon-y nonsense back then similar to this HBR article to describe why their strategies made sense, how they weren’t just financial vultures. The difference is that in the 1960s and 1970s, we enforced antitrust laws, so they couldn’t monopolize even if they wanted to. This time, PE fund managers, who are basically just conglomerate managers reborn, can create monopolies, sorry, I mean ‘ecosystems,’ if they are able. It’s not entirely clear whether they will be able to do so. Some probably will, some won’t.” …
The End Game: Part I
… “It’s time to pull it all together, and figure out how we got to where we are, with US markets breaking record highs in the middle of a global recession and pandemic. The rampant inflation of the 1970s forced a change of tactics from the Fed which began cutting interest rates by too much during crises, and not raising them enough afterwards. After 2008, it also began printing money and buying financial assets to stimulate economies. As a result, indebtedness has increased. It’s no longer with the banks though. It’s mainly with corporates and governments. That is why we are at the stage where bond yields are at all-time lows at the same time as stocks are at all-time highs. Both have experienced mind-bending, five-decade bull runs. Meanwhile, average workers are being priced out of these financial gains, leading to a widening of gaps in society. With all of the above factors gaining momentum, markets are headed for a reckoning. Like all cycles, they cannot go on forever. Market cap cannot exceed GDP forever. Valuations cannot go up forever. Debt burdens cannot grow forever. …”…