opinion
Corporate concentration is at an all-time high and killing competition. Business-friendly Donald Trump may not care
[url]https://www.theglobeandmail.com/business/commentary/article-corporate-concentration-is-at-an-all-time-high-and-killing-competition/[/url]
Wall Street is one happy place. The markets have been on fire since Donald Trump won the U.S. presidential election, and fortunes large and small are being made. But good news for the men and women who run the investment banks is not necessarily good for the average family living paycheque to paycheque.
The S&P 500 has been setting a series of record highs and is up 27 per cent so far this year, with much of the gains coming since September, when the betting odds moved in favour of a Trump victory. Trading volumes of U.S. equities were up 38 per cent in November year-over-year.
Less well advertised was the flurry of mergers and acquisitions. On Monday alone, American companies banged together some US$33-billion worth of deals, according to the Financial Times. The biggie that day was Omnicom’s US$13-billion all-share purchase ([url]https://www.theglobeandmail.com/business/international-business/article-ad-giant-omnicom-takes-aim-at-big-tech-ai-era-with-us1325-billion/[/url]) of Interpublic, an advertising industry competitor. Global M&A is way up over last year, partly because of falling interest rates, but also because of waning investor fear that the wars in Ukraine and the Middle East, even if they intensify, might trigger the Third World War.
Takeovers are back – see Mars’s US$36-billion purchase of Pringles maker Kellanova in August ([url]https://www.theglobeandmail.com/business/international-business/article-snickers-maker-mars-to-acquire-kellanova-for-nearly-us30-billion/[/url]) – but this is nothing to cheer about unless you are on the receiving end of the Wall Street advisory fees. These deals generally lead to greater corporate concentration, reducing competition and lifting prices. While the high inflation of the pandemic and ensuing years was in good part triggered by supply chain disruptions and surging energy prices, there is little doubt that dwindling competition in many industries played a role. If you don’t believe that, try buying an airline ticket without groaning.
The Biden administration was seen to be fairly tough on big-bang M&A, though corporate concentration did not go into reverse. The U.S. Department of Justice, for instance, requested the sale ([url]https://www.theglobeandmail.com/business/international-business/article-google-must-divest-chrome-to-restore-competition-in-online-search-doj/[/url]) of Google’s Chrome browser “in a bid to end its monopoly on internet search.” And the U.S. Federal Trade Commission sued to block the US$25-billion merger of grocery chains Albertsons and Kroger. That deal was announced in 2022 and would have created the biggest supermarket empire in the United States, maybe the world. It was formally abandoned ([url]https://www.theglobeandmail.com/business/international-business/article-albertsons-terminates-us25-billion-merger-with-kroger-sues-rival-for/[/url]) only this week.
And Trump 2.0? No one knows yet whether he will go tough on antitrust or take more of a hands-off approach than his White House predecessor. During his first term as president, he was no friend of Big Tech but did allow some blockbuster mergers, such as the one between ([url]https://www.theglobeandmail.com/business/international-business/us-business/article-sprint-t-mobile-merger-expected-to-receive-justice-department/[/url]) Sprint and T-Mobile, to go ahead despite opposition from many state attorneys-general.
The market rally suggests his pro-business approach will win the day. And does anyone think he will not reward the companies, CEOs and private-equity players that helped bankroll his lunge for the White House?
Mr. Trump raised many millions from the U.S. oil and gas industry, though far short of the US$1-billion he requested in exchange for the promise to scrap environmental rules if elected. Still, he may feel inclined to allow the Texas boys to do what they want. Tesla boss Elon Musk spent more than US$250-million ([url]https://www.theglobeandmail.com/world/article-elon-musk-spent-more-than-a-quarter-of-a-billion-dollars-to-help-elect/[/url]) to help get Mr. Trump elected. The return favours may be about to start. On Friday, Reuters reported ([url]https://www.theglobeandmail.com/world/us-politics/article-trump-transition-team-recommends-scrapping-car-crash-reporting/[/url]) that the Trump transition team wants the incoming administration to drop an autopilot car-crash reporting requirement. Would Mr. Trump stop Mr. Musk or his companies – among them Starlink, SpaceX and X – from buying competitors? Seems unlikely.
Corporate concentration in the United States – less so in Europe, though rising there too – has been climbing by the year, reducing consumer choice and allowing companies to pass price increases on to their customers. With so few competitors in so many industries, customers have little choice but to pay up.
Take airlines. In the United States, the Big Four – Delta, Southwest, American and United – own almost 70 per cent of the passenger market, with each holding a 16-per-cent to 18-per-cent share, according to the Department of Transportation. The share of fifth-place carrier Alaska Airlines is just more than 6 per cent.
Food prices have reached painful levels for some families, and the lack of competition is putting the squeeze on them at the checkout counter. Advocacy organization Farm Action says the top four companies in beef processing, corn and soybean seeds, soybean crushing, nitrogen fertilizer, retail grocery and pork processing utterly dominate their industries. The trend is similar in many other industries. The Economist magazine reported last year that corporate concentration is higher today than at any point in the last century. The top four companies in almost 100 business sectors have market shares above two-thirds, up from 65 sectors in 1997.
Mr. Trump has a choice: He can let the big get bigger and see competition keep falling away, or he can take the populist stand and fight the corporate M&A that is hurting the average family. There are more votes in the latter, but he may not care about that any more.
?
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Corporate concentration is at an all-time high and killing competition. Business-friendly Donald Trump may not care
[url]https://www.theglobeandmail.com/business/commentary/article-corporate-concentration-is-at-an-all-time-high-and-killing-competition/[/url]
Wall Street is one happy place. The markets have been on fire since Donald Trump won the U.S. presidential election, and fortunes large and small are being made. But good news for the men and women who run the investment banks is not necessarily good for the average family living paycheque to paycheque.
The S&P 500 has been setting a series of record highs and is up 27 per cent so far this year, with much of the gains coming since September, when the betting odds moved in favour of a Trump victory. Trading volumes of U.S. equities were up 38 per cent in November year-over-year.
Less well advertised was the flurry of mergers and acquisitions. On Monday alone, American companies banged together some US$33-billion worth of deals, according to the Financial Times. The biggie that day was Omnicom’s US$13-billion all-share purchase ([url]https://www.theglobeandmail.com/business/international-business/article-ad-giant-omnicom-takes-aim-at-big-tech-ai-era-with-us1325-billion/[/url]) of Interpublic, an advertising industry competitor. Global M&A is way up over last year, partly because of falling interest rates, but also because of waning investor fear that the wars in Ukraine and the Middle East, even if they intensify, might trigger the Third World War.
Takeovers are back – see Mars’s US$36-billion purchase of Pringles maker Kellanova in August ([url]https://www.theglobeandmail.com/business/international-business/article-snickers-maker-mars-to-acquire-kellanova-for-nearly-us30-billion/[/url]) – but this is nothing to cheer about unless you are on the receiving end of the Wall Street advisory fees. These deals generally lead to greater corporate concentration, reducing competition and lifting prices. While the high inflation of the pandemic and ensuing years was in good part triggered by supply chain disruptions and surging energy prices, there is little doubt that dwindling competition in many industries played a role. If you don’t believe that, try buying an airline ticket without groaning.
The Biden administration was seen to be fairly tough on big-bang M&A, though corporate concentration did not go into reverse. The U.S. Department of Justice, for instance, requested the sale ([url]https://www.theglobeandmail.com/business/international-business/article-google-must-divest-chrome-to-restore-competition-in-online-search-doj/[/url]) of Google’s Chrome browser “in a bid to end its monopoly on internet search.” And the U.S. Federal Trade Commission sued to block the US$25-billion merger of grocery chains Albertsons and Kroger. That deal was announced in 2022 and would have created the biggest supermarket empire in the United States, maybe the world. It was formally abandoned ([url]https://www.theglobeandmail.com/business/international-business/article-albertsons-terminates-us25-billion-merger-with-kroger-sues-rival-for/[/url]) only this week.
And Trump 2.0? No one knows yet whether he will go tough on antitrust or take more of a hands-off approach than his White House predecessor. During his first term as president, he was no friend of Big Tech but did allow some blockbuster mergers, such as the one between ([url]https://www.theglobeandmail.com/business/international-business/us-business/article-sprint-t-mobile-merger-expected-to-receive-justice-department/[/url]) Sprint and T-Mobile, to go ahead despite opposition from many state attorneys-general.
The market rally suggests his pro-business approach will win the day. And does anyone think he will not reward the companies, CEOs and private-equity players that helped bankroll his lunge for the White House?
Mr. Trump raised many millions from the U.S. oil and gas industry, though far short of the US$1-billion he requested in exchange for the promise to scrap environmental rules if elected. Still, he may feel inclined to allow the Texas boys to do what they want. Tesla boss Elon Musk spent more than US$250-million ([url]https://www.theglobeandmail.com/world/article-elon-musk-spent-more-than-a-quarter-of-a-billion-dollars-to-help-elect/[/url]) to help get Mr. Trump elected. The return favours may be about to start. On Friday, Reuters reported ([url]https://www.theglobeandmail.com/world/us-politics/article-trump-transition-team-recommends-scrapping-car-crash-reporting/[/url]) that the Trump transition team wants the incoming administration to drop an autopilot car-crash reporting requirement. Would Mr. Trump stop Mr. Musk or his companies – among them Starlink, SpaceX and X – from buying competitors? Seems unlikely.
Corporate concentration in the United States – less so in Europe, though rising there too – has been climbing by the year, reducing consumer choice and allowing companies to pass price increases on to their customers. With so few competitors in so many industries, customers have little choice but to pay up.
Take airlines. In the United States, the Big Four – Delta, Southwest, American and United – own almost 70 per cent of the passenger market, with each holding a 16-per-cent to 18-per-cent share, according to the Department of Transportation. The share of fifth-place carrier Alaska Airlines is just more than 6 per cent.
Food prices have reached painful levels for some families, and the lack of competition is putting the squeeze on them at the checkout counter. Advocacy organization Farm Action says the top four companies in beef processing, corn and soybean seeds, soybean crushing, nitrogen fertilizer, retail grocery and pork processing utterly dominate their industries. The trend is similar in many other industries. The Economist magazine reported last year that corporate concentration is higher today than at any point in the last century. The top four companies in almost 100 business sectors have market shares above two-thirds, up from 65 sectors in 1997.
Mr. Trump has a choice: He can let the big get bigger and see competition keep falling away, or he can take the populist stand and fight the corporate M&A that is hurting the average family. There are more votes in the latter, but he may not care about that any more.
?
?
Comment