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Antitrust: Difference between revisions
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Now, until about 1980, there were limits to the economy of scale: there is a point where the internal organisation itself gets so unwieldy, and irrevocably committed to a single business model, that it can’t innovate, or react to smaller competitors who do. You create supply chains, branch networks, warehouses, and so on. These have a drag on your profitability, and are increasingly difficult to change should the market change. So the “scale effect” wears off and ultimately can go negative: the bigger you are the worse a competitor you are. | Now, until about 1980, there were limits to the economy of scale: there is a point where the internal organisation itself gets so unwieldy, and irrevocably committed to a single business model, that it can’t innovate, or react to smaller competitors who do. You create supply chains, branch networks, warehouses, and so on. These have a drag on your profitability, and are increasingly difficult to change should the market change. So the “scale effect” wears off and ultimately can go negative: the bigger you are the worse a competitor you are. | ||
===Then things changed=== | |||
But starting in the 1980s two things happened to change this. | |||
Firstly, the privatisation ideology took hold of the private sector: In the same way governments were getting out of non-core activities like running railway lines and coal mines, so did corporates get out of what they supposed to be non-core activities like manufacturing parts (and, er, negotiating finance contracts): whole divisions were outsourced, off-shored, spun off, de-merged, or just shut down, giving the “core business” back a lot of flexibility it had lost. If you own your production line, it is an expensive exercise to junk it if it no longer makes sense. If you have outsourced it, its’ a cinch: just terminate the contract and walk away. | |||
Secondly, the internet arrived. Suddenly businesses found they | Secondly, the internet arrived. Suddenly, “old economy” businesses found they could cheaply connect with their customers, suppliers and markets. They no-longer needed their huge distribution network infrastructure to reach their clients. It got a lot easier to communicate internally. Suddenly size was less of a burden — and if it became one, it became much, much easier to outsource. | ||
In knowledge industries, operations, infrastructure, human resources, contract negotiators, customer services representatives all found themselves suddenly jettisoned to third-party call centres in places like Belfast, Glasgow, Bucharest and Bangalore. ''More'' of the inhibitors of economy of scale were went away. | |||
Even so, some sleeping giants missed the boat and quickly lost out to scrappy start-ups like Amazon: Barnes & Noble, Tower, Sears & Roebuck, even IBM. But suddenly the startups themselves were behemoths, their lack of infrastructure meant they could beat out the giants. | |||
Suddenly, scale was much less of a limiting factor, because so much of it could be achieved with software. | Suddenly, scale was much less of a limiting factor, because so much of it could be achieved with software. | ||
A similar thing was happening in banking. Banks started scaling back branches, and reaching customers electronically. Previously, banks had grown (like Citi) through acquisition. | A similar thing was happening in banking. Banks started scaling back branches, and reaching customers electronically. Previously, banks had grown (like Citi) through acquisition. | ||
==Antitrust is not the only game in town== | |||
Seeing antitrust as purely a consumer satisfaction tool is, we think, short-sighted. | |||
Ensuring market stability, vouchsafing a robust market, fostering innovation. These are things consumers don’t realise they want until they are not there (and it will never know what innovation it hasn’t missed. Now not just the regulatory barrier to entry but a scale one. As we rolled into the 2000s we became aware of a bigger problem: [[too big to fail]] and [[systemically important financial institution]]: banks that are so big, and so interconnected, that if they collapse they can trigger Armageddon. Most investment banks are well and truly past that point. | |||
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