How Bad is Being Big?

 The Editor

The Economist                                                                                                                             via email

Re How Bad is Being Big? July 15^th issue.

Your article examines market concentration, churn in share, and “excess profits”. As you point out, bigness per se is not illegal in the US nor is reaping large profits. Lower costs to consumers and customers have been the overriding rationale for approving mergers and acquisitions. But I counter that bigness, particularly via acquisition, is inherently anti-competitive. I favor disapproval of further acquisitive growth and break-up of oligopolistic industry structures.

I base my view on 31 years as a denizen of large corporations and 16 years of consulting with small and independent businesses on how to outperform large competitors. Early in my career, I watched a frustrated FTC wrestle with oligopoly in a consumer-packaged foods market. Their point was that we did not have to conspire or collude to manage prices; knowing who would follow whom gave us the leverage we needed. But under anti-trust law, oligopolies are not illegal.  Later on, in another consumer product market,  I helped consolidate an industry and amass market share through purchase of 14 companies around the world. Later, as central marketing services provider to diverse members of our conglomerate, I provided a range of professional skills and assets, as market and consumer research, distribution leverage, syndication of media content, public relations and advertising expertise, systems development, purchasing and so on. Finally, with a different corporation in consumer and business services, I helped it grow and dominate through internal development, acquisition, and franchising.

What competitive advantages accrue to the large? Lower cost of capital than available to the independent. Ability to recruit promising talent from leading graduate schools. Special skills support such as risk management, quality control, distribution logistics, system development. Basic research that leads to product and service development. Supplier leverage and purchasing clout. Marketable shares with which to acquire. The list goes on and on.

Bigness is an asset. This is not to say the behemoths do not stumble. They generally are not nimble and lose agility. But don’t we often we see one enter a market second and use their inherent advantages to overwhelm and rise to #1? Bigness is inherently anti-competitive.