Monopoly power

The problems of monopoly are well understood but it seems the authorities are now powerless to break up mega-corporations, partially because of corporate control of media and politics but mainly because of consumer behaviour and preferences. In high streets, up and down the country, people have chosen convenience and price over individuality, character and resilience. We are victims of our own desires. Tom Lines (of the Occupy Economics Working Group), in response to a question about the economic impact of superstores on local shops and businesses, penned the following explanation which sums up the problem well:

Can I answer Em's question in a slightly different way?  It is that if I was going to London, or Lyme Regis, I wouldn't start from here.  The fact is that big chains and supermarkets are very popular.  That's why they keep on making money and expanding.  Taking Dave's example, one can well imagine many people in Lyme - as well as the Tesco board - thinking, 'Oh good!  Now we can do our weekly shop locally and we won't have to drive to Axminster for it! Well, that is an improvement!  A pity about that nice greengrocer and the newsagents, but isn't it convenient to buy everything under one roof and load it all into the car at once?'

The problem is one of market power: how it works in this case, who really has the power, who loses out from it, and who is in the best position to do something about it.  Conventional theories of anti-competitive behaviour are based on the idea of monopolies (one company controlling a market) and oligopolies (a handful of companies controlling it) - but in either case, at the production (supply or selling) end of the supply chain) the consumer ripped off by US Steel, Standard Oil or British equivalents of them pushing up prices because they faced no competition for their sales.  Therefore things like anti-trust legislation in the US and the Monopolies Commission in the UK were created (although they have been much watered down since the Reagan-Thatcher era).

But that is no longer the most serious problem: it is not 'seller power' of that sort, but 'buyer power': on food markets at least - and seemingly a lot of other consumer markets too - the narrowest points on the supply chain, with the smallest number of competing firms and therefore the greatest concentrations of power, are not at the production (farming) end but near the consumer end.  In most food markets they are with the retailers, although there are still some products (such as coffee) where processing firms like Nestle and Kraft remain the strongest.

But even then, the pressure they exert is largely forced backwards along supply chains, to the farmers ultimately, in the form of a squeeze on the prices and terms of sale that farmers have to accept.  In general, supermarkets are extremely competitive with each other when it comes to getting business off us, the consumers - even though only a small handful of them dominate the market.  Because of this 'buyer power' exerted by us, the consumers, they stock not only standard products but a lot of 'niche' lines such as organic, low-fat and vegan, in order to serve all tastes and income groups.  But their profit margins are very low: they make their income out of the sheer volume of sales, and by pushing all the pressure back down the supply chains to their suppliers, and not forwards to their customers.  Politically that is very hard to counter, because there are 60 million consumers and only 300,000 farms.

Another factor is the centralised warehousing done by the supermarkets, with all the transporting of goods backwards and forwards around the country between the original supply point, processing and warehouse units and the points of sale, as well as other wasteful uses of energy like open-fronted chill cabinets for products like milk.

I think that basically this is something for the government to sort out, but modern governments don't want to offend supermarket bosses any more than other corporate bigwigs.  Why, the saintly Tony even put Lord Sainsbury on the government's payroll!  (A year or two ago, I received an e-mail from a senior figure in the Fabian Society which referred, with a straight face, to 'Lord Sainsbury and other left-wingers'!!!!!!)  The government ought to break them up, perhaps by insisting on a maximum 10 per cent market share for any company in a major retail sector, and impose a lot of other restrictions on the exploitative ways they do business with their suppliers.

In the US in the last century the federal government did just that, and succeeded in debilitating an early predecessor of Walmart, which had the resonant name of the Great Atlantic & Pacific Tea Company, or A&P.  Here is a chart of its number of stores (from Wikipedia):

Year No. of Stores

1863 5
1878 70
1900 400
1915 1,600
1930 16,000
1950 4,500
1970 4,000
1980 2,000
1990 1,000
2000 600
2008 460
2011 338
2012 310

There is a long piece which covers this at http://www.alternet.org/story/39251/the_case_for_breaking_up_wal-mart.  It goes into the A&P story near the bottom, reporting:

'Over the years, the federal government repeatedly hauled the A&P into court for abusing its market power.  The government first began to scrutinize the firm in 1915…  The final antitrust case against the A&P was not resolved until February 1979, a month after a West German grocery mogul bought control over the remnants of the once-huge firm.'

In 2010 A&P eventually filed for bankruptcy protection - although it evidently emerged on the other side.

Part of the policy should be to insist that supermarkets all sell off any smaller shops they own, like the 'Sainsbury's Local' and so on which have smashed corner shops over the last few years.  And local authorities ought to be given strong planning powers to fix a point (which could be zero) beyond which they will not allow any more shops in a retail sector into their area, and to put limits on their size.  Each authority could then make its own judgment: is the convenience of having a big store in the town more important or the variety and competition which come with maintaining an independent greengrocer etc?  I wouldn't be dogmatic about that because it's a balance between one thing and another.  Different councillors and their electorates will reach different conclusions, and they should have the right to do so.  What matters is to give them the power to make such decisions when they see fit; and to sharply reduce the supermarkets' market power and make them subject to these democratic controls.

We are party to our own exploitation.

Tom also recommended study of "buyer power" in the UK food industry:

Food, Inc by Bill Vorley

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