Is Manufacturing Industry Consolidation Stifling Competition and Innovation?

In the 1970s, approximately 30 airlines operated in the U.S. Some of them had been around a long time, such as Pan American, Trans World Airlines, Eastern, National, and Braniff, to name just a few. Through mergers, acquisitions and bankruptcies, the number was reduced to six airline companies. In the last decade, with United merging with Continental, and American swallowing U.S. Air, there are now only four major carriers in the U.S.—United, Delta, American and Southwest (and a few minor players).

American and United used bankruptcy to squeeze every dollar they could out of their employees. Now all four of the major carriers are profitable, pay dividends, buy back their stock and are piling up profits. They now have an oligopoly, where they control enough routes that they can raise prices and charge huge fees. In some cases, this has allowed them to raise fares by as much as 65%.

As everybody now knows, the big banks also have been merging and consolidating. Though there are more than 7,000 banks in the U.S., only 19 of them control 60.6% of the total assets.

With the repeal of Glass-Steagle Act, these big banks have refocused their business on proprietary trading—essentially gambling with depositor’s money. Today, the big banks contribute more money to proprietary trading then they do to loans to consumers and businesses. The irony is that the big banks are still too big to fail, and they can rely on the fact that nobody will go to jail and the government will always have to bail them out.

After the big banks created toxic mortgages and then securitized them to be sold all over the world, causing the start of the Great Recession, they got themselves into a financial position where the government had to loan them trillions of dollars to stay afloat. The amazing thing is that the government allowed them to use the money to broker and subsidize mergers such as Wells Fargo's takeover of Wachovia; JP Morgan Chase's acquisition of Washington Mutual; and Bear Sterns and Bank of America’s absorption of Countrywide Financial and Merrill Lynch, which accelerated consolidation and created the bank oligopoly we have today.

The top four banks in the U.S. are J.P. Morgan Chase, Bank of America, CitiBank and Wells Fargo. They are still too big to fail and in a position to do it all over again. Senator Sherrod Brown explains: "The four largest behemoths, now ranging from $1.4 trillion to $2.3 trillion in assets, are the result of 37 banks merging 33 times. In 1995, the six biggest U.S. banks had assets equal to 18% of GDP. Today, they hold assets of about 63% of GDP.”

The search engine business is dominated by Google, which, according to Forbes, owns 90% of the market in non-mobile search worldwide. By any definition, Google is a monopoly that purchased more then 100 companies to gain and retain market share.

In 1983, 50 companies controlled the vast majority of news media including newspaper, magazines, radio and TV stations, books, movies, videos, and wire services. Consolidation reduced the original number to 24 companies by 1992 and to six companies by 2000. Today, five corporations—Time Warner, Disney, News Corp., Bertelsmann (of Germany) and Viacom control the majority of the U.S. media industry. Cable providers like Time Warner and Comcast have raised the price of their subscriptions at close to three times the rate of inflation since 2008. American cable customers pay twice as much for a cable subscription then European customers.

In the last 30 years, hospitals in most cities have been merging and consolidating in local markets. Though not national examples, they have formed local monopolies in cities, often leaving only a few hospitals to choose from. These mini-monopolies are also able boost the prices for most of their services. Hospital pricing is the leading cause of healthcare cost increases, and we've seen prices of 50% to 100% on services from blood tests to chemotherapy. This is a major reason that health care costs have risen so high.

In 1982, the five largest meatpackers controlled 16% of the meat industry. Today four firms control 85% of the beef market, an oligopoly that includes National Beef, Cargill, Tyson (IW500/39), and JBS (which purchased Swift).

Microsoft (IW500/16) has dominated the operating system market since the inception of the IBM personal computer in 1981. As recently as 2008, it had 95% of the market and, as of 2011, 90%. They are an obvious monopoly and have controlled pricing and made it difficult for competitors to enter its market. Legal efforts to break its monopoly both in the U.S. and in Europe have failed.

Closely allied to Microsoft is Intel (IW500/24), which dominates the microprocessor market. Intel has captured 80.3% of the microprocessor market, while its closest competitor, Advanced Micro Devices (IW500/192), has 12.1%

The beer industry is an almost a perfect example of consolidation. Those of us who were drinking age in the 1970s can remember going to the supermarket and seeing and entire aisle full of beer brands to choose from. At that time, there were 43 firms making beer, and the largest had 25% of the market. Today two firms—Anheuser Busch and Miller/Coors—own 90% of the non-craft beer market.

The auto industry is now a global industry where five multinational companies have 50% of the world market. The top 10 auto manufacturers control 70% of the world market. The 50th largest auto producer has one tenth of 1% of the world market.

There are currently 50 oil and gas producers in the U.S. producing 2,736 million barrels of oil per year. Exxon merged with Mobil Oil (Exxon Mobil, IW500/1), and Conoco merged with Phillips (ConocoPhillips, IW500/22). Along with Chevron (IW500/2) and Occidental Petroleum (IW500/48), these four giants have 70% of all oil produced in the U.S. (1,919 barrels).