The pandemic is setting off a wave of mergers. And that’s a problem.

Open Markets Managing Editor, Michael Bluhm, released an article on LinkedIn emphasizing the heightened level of emerging M&A deals, particularly between Big Tech firms, during the COVID-19 pandemic. Bluhm details the dangers and negative consequences brought on workers, wages, and small businesses in result of such consolidation

Many prescriptions for a robust economic recovery from the pandemic ignore one crucial variable: mergers and acquisitions. In particular, Big Tech and private equity giants are flush with cash and gobbling up companies temporarily weakened by the economic crisis.

But this wave of consolidation will drive down the number of jobs available to American workers, keep wages low, raise prices for consumers, and stifle competition and innovation. We do, fortunately, have the tools to stop this kind of concentration.

Altogether, the five dominant tech corporations – Apple, Amazon, Google, Facebook, and Microsoft (LinkedIn's parent company) – have nearly $560 billion in cash. And the buying spree has already begun. In 2020, Big Tech is buying up companies at a faster rate than in any year since 2015. Facebook spent $400 million to buy Giphy, a platform for sharing animated images, in addition to major purchases in India and Indonesia. The social media giant announced in early June that it was creating a venture capital fund to pour more money into acquiring startups.

Amazon just concluded a $1 billion deal to buy the autonomous driving company Zoox, and it’s working on deals to buy AMC Theaters, the world’s largest chain of movie houses, as well as retailer J.C. Penney.

Apple bought a virtual reality company (NextVR), a digital assistant and speech recognition company (Voysis), and an AI startup (Xnor.ai), as well as the much beloved weather app Dark Sky.

Unfortunately, federal regulators will have limited capacity to examine this wave of consolidation, as the Justice Department had asked for more time to review mergers proposed even before the COVID-19 pandemic forced most Americans into quarantine, according to Politico.

Big Tech has brought its users wonderful innovations, and these companies have often developed superior products and won market share on the merits of those products and services. Dominant corporations in a wide array of industries here and abroad can make similar arguments. But compelling data show that when these big corporations turn into monopolies or occupy the dominant position in their respective sectors, that dynamic harms workers, consumers, and citizens.

Mergers and acquisitions mean fewer jobs. For example, in the wake of the Great Recession, pharmaceutical giant Pfizer bought Wyeth, another leading pharma corporation, in early 2009 for $67.3 billion. Pfizer immediately fired 19,000 employees, and 37,000 employees had lost their jobs by 2013. Pfizer cut spending on research and development nearly in half, from $11.3 billion to $6.5 billion – including closing the research site where scientists had invented Viagra, one of Pfizer’s most lucrative concoctions. Not only did innovation suffer, as Pfizer dumped some 400 chemists, but drug prices ended up increasing as well.

In 2016, former President Barack Obama’s Council of Economic Advisors examined the links between employment and industry concentration, and they describe an employment problem that economists refer to as monopsony. While the term monopoly represents a case where there is a single seller of goods or services, monopsony means that only one buyer is present in a market. Once mergers and acquisitions lead to concentrated industries, employers can much more easily take advantage of monopsony power to depress the wages and salaries of those who work in those industries. The few remaining corporations in a concentrated industry inevitably wield monopsony power because they represent the sole buyers of the work of employees in that sector.

We are already seeing the negative effects of such monopsony. The Justice Department found that Big Tech has colluded to keep down the salaries of software engineers – and that was before the current wave of consolidation. And industry concentration has kept the median American’s annual income about 30% lower than it would be in a more competitive job market, according to a 2018 article in the Harvard Law Review.

Mergers and acquisitions also take money out of the pockets of consumers. On average, mergers lead to a 7% increase in the prices of the corporation’s products. Industry concentration costs each American family roughly $5,000 per year in higher prices for goods and services, calculated author Thomas Philippon, in his 2019 book The Great Reversal: How America Gave Up on Free Markets.

Moreover, monopsony employers typically divert more of their corporation’s income to paying out dividends to shareholders, many of whom are already wealthy. So, concentration can also worsen economic inequality. The police killing of George Floyd and the subsequent protests have riveted the attention of the country and the world on America’s systemic racism, so it’s important to point out that the pernicious effects of economic concentration fall disproportionately on communities of color, which have lower median incomes and higher rates of unemployment.

“Concentration of corporate power leads directly to worse outcomes for Black and Brown folks in everything from pharma to employment to banking,” said Maurice BP-Weeks, co-executive director of the Action Center on Race and the Economy.

Mergers and acquisitions can also suffocate innovation. As product lines or whole economic sectors become more concentrated, investors become less willing to finance startups that might be incubating a better product. Dominant corporations are too daunting of a barrier to market entry. Amazon, for example, is facing a lawsuit from the European Commission because Amazon used its monopoly power over its online marketplace to foist its own products on consumers, essentially choking off access that potential competitors could have had to the market. Other tech giants simply buy up their rivals, as Facebook did with Instagram and WhatsApp.

We can stop the imminent wave of pandemic-fueled mergers and acquisitions. On March 21, my employer, Open Markets Institute, proposed a moratorium on mergers and acquisitions during the pandemic, if the merger involves a corporation with annual revenue of more than $100 million or involves a financial institution or equity fund with more than $100 million in capitalization. On April 28, Sen. Elizabeth Warren and Rep. Alexandria Ocasio-Cortez introduced the Pandemic Anti-Monopoly Act, a bill closely modeled on Open Markets’ proposal. Their proposal won the support of 27 national and state organizations, including groups focused on environmental issues, food and agriculture, and social justice.

The $100 million figure is arbitrary, but we chose it to allow struggling independent businesses to combine – and to prevent any unnecessary job losses. The government could also help temporarily failing firms from shutting down, either through direct support or restructuring private credit markets. Moreover, a merger moratorium would represent a strong incentive to banks and other investors to provide capital to viable firms that are struggling today, as the moratorium would protect these businesses from the vast power of large corporations and private equity firms prowling for buyout targets.

This fight against corporate concentration is one of the few issues in America today that bridges the partisan divide. A coalition of 51 state attorneys general (including all 50 states and the District of Columbia), led by Texas Attorney General Ken Paxton, a Republican, is preparing to file a lawsuit this fall against Google for using its market dominance to thwart competition in the market for digital advertising.

As this lawsuit shows, elected officials – including state and federal legislators and officials at the Justice Department and Federal Trade Commission – can take meaningful steps to avoid the potential economic damage of a wave of mergers and acquisitions that would further consolidate American industries. For example, laws pausing big mergers during the pandemic, careful agency review of proposed mergers, and legal challenges to mergers or monopolistic wrongdoing all are necessary. Maybe the simplest remedy would be bright-line limits on market concentration in all U.S. industries, enacted either through congressional legislation or executive order.

All of us can take meaningful steps to help: We can choose not to support monopolies and dominant corporations, and instead back independent businesses and organizations fighting against the predatory behaviors of corporations that could sabotage our recovery.

See article on LinkedIN