Concentration Is Bad

Speaking of corroborating evidence, this article at Bloomberg by Noah Smith supports something I’ve been saying for some time—monopolies might be a contributing factor to income inequality:

There’s now evidence that market concentration could also be hurting workers, by decreasing the share of national income that they receive. It’s probably making inequality worse. I also suspect that creeping monopoly will prove to be one of the main reasons for decreasing business dynamism. And it could even be a contributor to slow productivity growth. In other words, many of the diseases in our economy can probably be traced, at least in part, to the problem of market concentration. And it’s getting worse…

The more human-scale things are the more conducive they are to human well-being. That’s true of all organizations not just businesses. Economies of scale are mostly over-rated. I learned that a long time ago when I accidentally received an invoice sent to one of the biggest buyers in the world in the mail and learned that they were paying the same thing as I was.

3 comments… add one
  • Guarneri

    I absolutely think you, and Mr Smith, are correct. Large and unaccountable can lead to inefficiency and, often, abuse of power.

    However, I think you grossly underestimate scale economies with your example. In fact, the a lack purchasing power due to scale runs counter to the proposition of power vis a vis labor. You don’t have to reach absolute monopoly to negotiate advantageously with labor.

  • CStanley

    If the economy is depicted by a group of pyramids, and we have a small number of very large pyramids, vs greater number of small pyramids, then there is more income disparity between workers at the bottom of all of the pyramids and the top management at the apices.

    Seems pretty obvious, which also means that antitrust policies should be addressed if income inequality is really a problem.

  • steve

    “You don’t have to reach absolute monopoly to negotiate advantageously with labor.”

    Tell that to the libertarians. They don’t think monopsony exists.


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