AOC Defines Monopoly Down

A t a recent congressional hearing, Representative Alexandria Ocasio-Cortez (D., N.Y.) had some curious thoughts on market consolidation. You can watch the exchange here:

Ocasio-Cortez says, “We have people being squeezed on both sides with lower wages and higher costs.” She asserts that one of the “driving forces” behind this trend is corporate mergers, “an issue that lies directly at the root of both of these interconnected crises.”

It is true that last year was, in many respects, a record year for mergers and acquisitions in the United States. “Records were shattered across every dimension — M&A volume and number of transactions, in the United States and globally; private equity transactions; the SPAC phenomenon; and IPOs, to name just a handful,” says an article from the Harvard Law School Forum on Corporate Governance.

But this isn’t the first time mergers have surged. There have been five prior “merger waves” in American history. The first was 1897–1907, the famous era of steel and oil trusts. The second was 1916–1929, ending with the start of the Great Depression. The third was 1965–1969, when many conglomerates formed. The fourth was 1981–1989, the era of the “hostile takeover.” And the fifth was 1993–2000.

These time periods were very different economically. For example, median real wages increased from 1982 to 1986 and then decreased until 1990. They were flat from 1990 until 1997, when they began to increase again. Inflation was very high in the ’70s without a merger wave, and it was low in the late ’80s and late ’90s with one. It’s safe to say that merger activity isn’t the explanatory variable in economic performance.

But Ocasio-Cortez was on a roll. She said she wanted to “draw a picture of corporate consolidation in the United States,” and went first to — you guessed it — the meat-processing industry. It’s the same example that President Biden gave in his State of the Union address. In trying to decipher Biden’s ad-lib comments in that speech, I suspected that when he said “four basic meat-packing facilities,” he actually meant four beef-processing companies, since there are four such companies that are responsible for about 70 percent of U.S. beef production: Tyson, Cargill, National Beef, and JBS.

Ocasio-Cortez was much more articulate and specific than the president. She was referring to all meat processing, not just beef, and named JBS, Cargill, Tyson, and Smithfield as the four companies that combine for a 53 percent market share in the industry.

This seems like a pretty strange go-to example of market consolidation. Another way of saying that 53 percent of the market is controlled by four companies is that 47 percent of the market is controlled by all the other companies, which doesn’t seem that bad. It’s also worth noting that, at least in the beef industry, the market share of the four largest companies has been flat since the early ’90s, so it couldn’t explain an increase in prices that began last year.

It gets worse, though. Ocasio-Cortez then took a tour of the retail industry and said that the four largest companies combine for a . . . 35 percent market share. In other words, 65 percent of the market is controlled by a bunch of other companies. The witness she is speaking with says that Walmart has a 14 percent retail market share and Amazon has 10 percent. These are the examples of monopoly that are supposed to have us quaking in fear?

It’s reminiscent of Senator Elizabeth Warren’s belief that Kroger’s 16 percent market share in groceries amounts to industry domination. We’ve really defined monopoly down.

Of course, monopoly is not really defined by market share in the first place. In economics, presence of a monopoly is indicated by a company’s increasing its prices as it decreases output. While price inflation has taken hold for meat, meat production in January and February of this year is higher than it was in January and February of last year, according to the Department of Agriculture.

Additionally, companies can have large market shares and still lack monopoly power because they don’t only compete within their industry. If an industry is contestable — meaning companies from other industries could enter it if they wanted to — then incumbent firms have to be mindful of them, too. Amazon provided a great example of how contestable retail is. What started as an online bookstore is now a direct competitor with Walmart in all things retail.

Market concentration can be a real problem; it’s just relatively uncommon in the competitive market economy we live in. When it’s real, it’s almost always the result of government intervention. Take the U.S. dredging industry, which has seen consolidation, higher prices, and a dwindling fleet of outdated ships — because all foreign competition is prohibited by law and the largest customer for dredging services is the federal government. That’s an actual case of market consolidation hurting consumers because the inability to dredge cost-effectively is one of the contributing factors to our present supply-chain woes, which are making lots of things more expensive.

Overall, the question remains: How many companies do progressives want there to be? How many companies have to combine for how much market share for progressives to be satisfied? They never say. You can pick any arbitrary number, slap the word “big” in front of it, and add up the market shares of that number of companies for any industry. Don’t be surprised if we hear next about the greed of the Big Seven silverware manufacturers.

The fact that they ignore dredging, an actual case of the phenomenon they wish to decry, and focus on meat and retail, where the concentration is pretty mild, sheds light on their real motive: demagoguery.