Monopoly Basics

Consumer Choice & Monopoly

The American consumer enjoys more choices than ever before, or so it seems. A trip to the grocery store reveals aisle after aisle of varied products marketed under countless brand names to countless specifications. Big e-commerce sites like Amazon feature a still greater plethora of choices.

Yet all is not what appears to be. Take eyeglasses, for example. One can shop for them at Lenscrafters, Pearl Vision, or Target, and pick brands as varied as Oakley, Ray Ban and Gucci. But one company owns all these outlets and brands plus more, and this ownership controls most of the eyewear market. As of this writing that company, Luxxotica, is seeking to combine with lens-maker Essilor to gain even more dominance of everything optical.

Then there is Proctor and Gamble. Trying to decide which is the best paper towel, Bounty or Charmin? P&G owns them both. Best Shampoo? P&G owns Aussie, Head and Shoulders, Vidal Sassoon, and Herbal Essences. Best diaper? Whether you chose Pampers or Luvs, P&G wins. Best product to get your clothes clean? Tide, Gain, Downy, and Fairy all compete for your business, except they don’t really because they are all owned by P&G. Other brands you might think of as independent–from Old Spice to Gillette, from Tampax to Crest are actually anything but, as P&G controls them all.

The soft drinks aisle is even more monopolized. Pepsi and Coca-Cola control 69.5 percent of the soft-drink market between them. Their next largest rival, Dr. Pepper Snapple Group, controls another large portion, so that the three collectively account for 86 percent of the entire industry. These firms, like so many others, acquire competitors to ensure they will control emerging markets as well as old standbys. Coca-Cola acquired Zico beverages, a producer of coconut water, in 2013, and in 2016 it purchased a soy-based drink brand–AdeS. In 2016, Dr. Pepper Snapple bought Bai Brands, a maker of a coffee fruit drink, while Pepsi bought KeVita, a Kombucha-brewer.

It’s a similar story with food products. Brands that seem to be independent and competing with each other often aren’t. As of 2014, Kraft owned Oscar-Meyer, Planters, Maxwell House, Jell–O, and Philadelphia Cream Cheese, while Heinz owned Weight Watchers frozen meals, Ore-Ida potatoes, and other brands alongside its massive condiment business. But in 2015, the two merged, so that now one company owns all of these brands and others.

Often even brands that are owned by different companies are produced by the same supplier so they don’t really offer the consumer any choice at all except in labels. Pet-owners witnessed this firsthand in 2007 when a recall of pet food from one factory expanded to cover dozens of brands–from Walmart’s store brand to higher-end products like Purina and Iams.

Just as the choice between different consumer products is often an illusion, so too is the choice between different retailers. The grocery stores Stop & Shop, Giant, Food Lion, Martin’s, and Peapod are all owned by one company–Ahold Delhaize.

Similarly, whether you shop and Albertson’s or Safeway you are doing business with the same company. An astounding 385 grocery mergers took place between 1996 and 1999. By 2012 just four companies claimed more than half of all grocery spending nationwide, and in many small towns across America Walmart was the only grocer left. Today, after a further round of mega mergers culminating in Amazon’s takeover of Whole Foods, the industry is even more concentrated and in danger of becoming monopolized by Amazon even in large metro areas.

In drug stores, the concentration is even greater. CVS, Walgreens, and Rite Aid collectively control 99 percent of the industry, and the latter two have sought to merge. Similarly, when you shop at Bloomingdales, you are really shopping at Macy’s, which itself long ago absorbed many of its other competitors, from Filene’s and Marshal Fields. Walmart meanwhile, not only monopolizes the grocery business in many locations, but also every other product category, from hardware, electronics, and garden supplies, to clothes, urgent care and car repairs.

When giant retailers like Amazon or Walmart put rivals out of business, this leads to a loss of consumer choice simply because there are fewer and fewer retail outlets. But monopoly also leads ultimately to there being fewer and fewer truly unique products for sale as well.

One reason is what’s called the “category captain system.” A dominant retailer like Kroger, for example, will take the biggest suppliers in a product category, such as, say, Frito-Lay in snacks, and make it the “captain” of its snack aisle, with responsibility for determining where competing snack products appear on the shelves of that section. What this means in practice is that Kroger gets a price concession (or legal kickback) from Frito-Lay’, while Frito-Lay gets to strangle its competitors by giving them inferior product placement, say at foot level rather than eye-level.

This system allows dominant producers to become even more powerful over their remaining competitors. Consumers, from whom this entire system is hidden, find their choices manipulated and limited by the arrangement, as growing market concentration reduces competition for the consumer’s dollar.

Another way consumer’s choice is limited by concentration comes when giant retailers strip profits and power away from their suppliers. This leverage is known as “monopsony power” and big retailers use it to bend suppliers to their will. Walmart, for instance, has told companies as powerful as Coca-Cola, Levi’s, and Disney what to put in their products. As Charles Fishman detailed in this book The Wal-Mart Effect, the company uses its purchasing power to pressure all its suppliers to cut wages and outsource production, which often means that suppliers must compromise product quality, variety, and innovation.

Another example of how monopsony power limits consumer choices comes from Amazon, which has forced book publishers to lower prices and thereby surrender more and more of their profits. This in turn has led to publishers taking far fewer risks on new writers and ambitious book projects, and to the collapse of the business model that previously sustained the production of books for a wide-variety of niche audiences.

To defend themselves against Amazon, publishers have merged frantically with each other, making an already highly concentrated publishing industry even more concentrated. The same dynamic is occurring throughout the consumer economy. Procter & Gamble acquired its longtime rival Gillette in 2005, in part to gain power in negotiations with Walmart. Colgate-Palmolive, facing the same pressures, followed suit–acquiring Tom’s of Maine in 2006 and Sanex in 2011.

These mergers and acquisitions among suppliers mean that consumers have fewer real choices in the products they buy, particularly over the long-term. Not only does the number of suppliers shrink, but as dominant firms become more and more entrenched, they become less innovative and less inclined to take risks on new or niche products,

This pattern of diminishing choice and rising concentration reflects a profound change from decades past. Throughout much of the twentieth century, Americans used anti-monopoly policies to preserve competition and guarantee decentralized markets in sectors as varied as retail, farming, eyeglasses, and airlines. The Robinson-Patman Act, for instance, allowed consumers to enjoy the benefits of shopping with a large and innovative retailer like Sears, while constraining  Sears’ ability to undercut other retailers with predatory pricing. Similarly, federal regulation and anti-trust policies allowed for grocery stores to evolve into more efficient, convenient supermarkets, but did not allow chains like the A&P to grow so large that they squashed competition and denied consumers choices about where they purchased their food.

Since the late 1970s, however, deregulation and a retreat from anti-trust enforcement has permitted growing monopolization–and declining choice–in not just retailing, but almost every sector of the economy, from airlines to hospitals, banks to communication companies. Meanwhile, industries which didn’t exist thirty years ago, like broadband internet, feature much less choice than they would if they weren’t dominated by a few monopolistic firms. Monopolies often present themselves as champions of consumer choice, but that is rarely true.

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In America today, wealth and political power are more concentrated than at any point in our country’s history.

The Open Markets Institute, formerly the Open Markets program at New America, was founded to protect liberty and democracy from these extreme -- and growing -- concentrations of private power.

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