Redefining monopolies
Unravelling the complex ties between corporate concentration and power.
Since the 1980s, two powerful ideas have shaped the high and damaging levels of concentrated corporate power that define today’s global economy. The first is that a business’s sole responsibility is to maximise shareholder value, and the second is the notion that efficiency, not market power, should guide antitrust matters.
These dominant doctrines have created forms of monopoly power that severely impact workers, consumers, and democracies in general. Monopoly power has resulted in slowed innovation, reduced investments, diminished productivity, and rising income and wealth inequality. And it is a roadblock to climate action.
International laws on trade, investment, and tax uphold these damaging monopolistic power structures, which empower corporations and solidify their dominance over democratic institutions.
In this age of overlapping crisis, ignoring the influence of corporate power is simply not an option, and the cost of monopoly power needs to be urgently exposed and addressed.
What is monopoly power?
Monopoly power enables firms to act autonomously, regardless of competitors, suppliers, customers, workers, the environment or governmental regulations. It is the ability to shape the terms and conditions of transactions within a given market.
This unchecked corporate power takes on different forms across different sectors. But irrespective of the type of monopoly power, they all generate a profit margin far higher than the market average. These elevated profit margins come at the expense of competitors, suppliers, workers and states.
According to Mariana Mazzucato(opens in new window) monopolists achieve these excessive margins by extracting value as opposed to creating value. These firms are takers as opposed to makers. The business model of takers revolves around generating rentier income which is the result of the ownership or control of scarce assets that can be monetised.
Monopoly power exists along a spectrum ranging from minimal to significant market power. Our focus is on assessing excess profits as a primary metric, which is closely linked to the ability to provide substantial returns to shareholders, and is indicative of an above-average market capitalisation (value of the firm on the stock market).
Another expression of monopoly power is found in global value chains. Here there is a breed of vertical monopolies, which revolves around lead firms that can dictate the terms of productions to suppliers. This results in large parts of the supply chain being drained of financial resources, while shareholders saw their payout skyrocket and lead firms increased their profit margins compared to other firms.
Our series of articles delves into the intricacies of monopoly power by scrutinizing the top 1% by market capitalization of publicly listed firms worldwide.
Redefining monopoly power
In four long reads, we unravel the complex ties between corporate concentration and power, focusing on these key aspects:
- The power to extract profits.
- The power to distribute profits.
- The power to profit without producing.
- The power to extract value from a value chain.
Together with other civil society organisations, we are working to tackle the broader underlying issues that bolster monopoly power. Throughout this series, we also explore the efforts that challenge monopoly power on the national and international levels.
Others on Monopoly Power – further reading
Joseph Stiglitz(opens in new window) defines rents as “getting an income not as a result for creating wealth but by grabbing a larger share of the wealth that would have been produced anyway”. According to Stiglitz monopoly rents harm makers, innovation and productivity, and they lie at the heart of income and wealth inequalities. The broader economic system, organized around assets that generate rents and on ways to sustain rentiers, is referred to as rentier capitalism by Brett Christophers(opens in new window) .
Luigi Zingales argues(opens in new window) that market concentration can lead to a vicious cycle in which companies use excessive market power to gain more political power that in turn allows them to gain more market power, and vice versa. Rising monopoly power has coincided with a rising plutocracy, where a class of billionaires is increasingly influencing decision making.
The role of monopoly power in global inflation
Monopoly power played a huge part in the recent global inflation and the following cost-of-living crisis.
50 years of prioritising shareholders
Monopoly power leads to unsustainable high levels of shareholder compensation, starves financial flows like wages, taxes, and investments, and hinders the transformation of carbon-based economies.
Do you need more information?
-
Rodrigo Fernandez
Senior researcher
