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6 Can market dominance by Big Business

change? /afaq/secC6.html

Capital concentration, of course, does not mean that in a given market, dominance will
continue forever by the same firms, no matter what. However, the fact that the companies
that dominate a market can change over time is no great cause for joy (no matter what
supporters of free market capitalism claim). This is because when market dominance
changes between companies all it means is that old Big Business is replaced by new Big

"Once oligopoly emerges in an industry, one should not assume that

sustained competitive advantage will be maintained forever. . . once
achieved in any given product market, oligopoly creates barriers to entry
that can be overcome only by the development of even more powerful
forms of business organisation that can plan and co-ordinate even more
complex specialised divisions of labour." [William Lazonick, Business
Organisation and the Myth of the Market Economy, p. 173]

The assumption that the "degree of monopoly" will rise over time is an obvious one to
make and, in general, the history of capitalism has tended to support doing so. While
periods of rising concentration will be interspersed with periods of constant or falling
levels, the general trend will be upwards (we would expect the degree of monopoly to
remain the same or fall during booms and rise to new levels in slumps). Yet even if the
"degree of monopoly" falls or new competitors replace old ones, it is hardly a great
improvement as changing the company hardly changes the impact of capital
concentration or Big Business on the economy. While the faces may change, the system
itself remains the same. As such, it makes little real difference if, for a time, a market is
dominated by 6 large firms rather than, say, 4. While the relative level of barriers may fall,
the absolute level may increase and so restrict competition to established big business
(either national or foreign) and it is the absolute level which maintains the class monopoly
of capital over labour.

Nor should we expect the "degree of monopoly" to constantly increase, there will be
cycles of expansion and contraction in line with the age of the market and the business
cycle. It is obvious that at the start of a specific market, there will be a relative high
"degree of monopoly" as a few pioneering create a new industry. Then the level of
concentration will fall as competitors entry the market. Over time, the numbers of firms will
drop due to failure and mergers. This process is accelerated during booms and slumps. In
the boom, more companies feel able to try setting up or expanding in a specific market, so
driving the "degree of monopoly" down. However, in the slump the level of concentration
will rise as more and more firms go to the wall or try and merge to survive (for example,
there were 100 car producers in the USA in 1929, ten years later there were only three).
So our basic point is not dependent on any specific tendency of the degree of monopoly.
It can fall somewhat as, say, five large firms come to dominate a market rather than, say,
three over a period of a few years. The fact remains that barriers to competition remain
strong and deny any claims that any real economy reflects the "perfect competition" of the

So even in a in a well-developed market, one with a high degree of monopoly (i.e. high
market concentration and capital costs that create barriers to entry into it), there can be
decreases as well as increases in the level of concentration. However, how this happens
is significant. New companies can usually only enter under four conditions:

1) They have enough capital available to them to pay for set-up costs and any
initial losses. This can come from two main sources, from other parts of their
company (e.g. Virgin going into the cola business) or large firms from other
areas/nations enter the market. The former is part of the diversification process
associated with Big Business and the second is the globalisation of markets
resulting from pressures on national oligopolies (see section C.4). Both of which
increases competition within a given market for a period as the number of firms in
its oligopolistic sector has increased. Over time, however, market forces will result
in mergers and growth, increasing the degree of monopoly again.

2) They get state aid to protect them against foreign competition until such time as
they can compete with established firms and, critically, expand into foreign
markets: "Historically," notes Lazonick, "political strategies to develop national
economies have provided critical protection and support to overcome . . . barriers
to entry." [Op. Cit., p. 87] An obvious example of this process is, say, the 19th
century US economy or, more recently the South East Asian "Tiger" economies
(these having "an intense and almost unequivical commitment on the part of
government to build up the international competitiveness of domestic industry" by
creating "policies and organisations for governing the market." [Robert Wade,
Governing the Market, p. 7]).

3) Demand exceeds supply, resulting in a profit level which tempts other big
companies into the market or gives smaller firms already there excess profits,
allowing them to expand. Demand still plays a limiting role in even the most
oligopolistic market (but this process hardly decreases barriers to entry/mobility or
oligopolistic tendencies in the long run).

4) The dominant companies raise their prices too high or become complacent and
make mistakes, so allowing other big firms to undermine their position in a market
(and, sometimes, allow smaller companies to expand and do the same). For
example, many large US oligopolies in the 1970s came under pressure from
Japanese oligopolies because of this. However, as noted in section C.4.2, these
declining oligopolies can see their market control last for decades and the resulting
market will still be dominated by oligopolies (as big firms are generally replaced by
similar sized, or bigger, ones).

Usually some or all of these processes are at work at once and some can have
contradictory results. Take, for example, the rise of "globalisation" and its impact on the
"degree of monopoly" in a given national market. On the national level, "degree of
monopoly" may fall as foreign companies invade a given market, particularly one where
the national producers are in decline (which has happened to a small degree in UK
manufacturing in the 1990s, for example). However, on the international level the degree
of concentration may well have risen as only a few companies can actually compete on a
global level. Similarly, while the "degree of monopoly" within a specific national market
may fall, the balance of (economic) power within the economy may shift towards capital
and so place labour in a weaker position to advance its claims (this has, undoubtedly,
been the case with "globalisation" -- see section D.5.3).

Let us consider the US steel industry as an example. The 1980s saw the rise of the so-
called "mini-mills" with lower capital costs. The mini-mills, a new industry segment,
developed only after the US steel industry had gone into decline due to Japanese
competition. The creation of Nippon Steel, matching the size of US steel companies, was
a key factor in the rise of the Japanese steel industry, which invested heavily in modern
technology to increase steel output by 2,216% in 30 years (5.3 million tons in 1950 to
122.8 million by 1980). By the mid 1980s, the mini-mills and imports each had a quarter of
the US market, with many previously steel-based companies diversifying into new

Only by investing $9 billion to increase technological competitiveness, cutting workers

wages to increase labour productivity, getting relief from stringent pollution control laws
and (very importantly) the US government restricting imports to a quarter of the total home
market could the US steel industry survive. The fall in the value of the dollar also helped
by making imports more expensive. In addition, US steel firms became increasingly linked

with their Japanese "rivals," resulting in increased centralisation (and so concentration) of

Therefore, only because competition from foreign capital created space in a previously
dominated market, driving established capital out, combined with state intervention to
protect and aid home producers, was a new segment of the industry able to get a foothold
in the local market. With many established companies closing down and moving to other
markets, and once the value of the dollar fell which forced import prices up and state
intervention reduced foreign competition, the mini-mills were in an excellent position to
increase US market share. It should also be noted that this period in the US steel industry
was marked by increased "co-operation" between US and Japanese companies, with
larger companies the outcome. This meant, in the case of the mini-mills, that the cycle of
capital formation and concentration would start again, with bigger companies driving out
the smaller ones through competition.

Nor should we assume that an oligopolistic markets mean the end of all small businesses.
Far from it. Not only do small firms continue to exist, big business itself may generate
same scale industry around it (in the form of suppliers or as providers of services to its
workers). We are not arguing that small businesses do not exist, but rather than their
impact is limited compared to the giants of the business world. In fact, within an
oligopolistic market, existing small firms always present a problem as some might try to
grow beyond their established niches. However, the dominant firms will often simply
purchase the smaller one firm, use its established relationships with customers or
suppliers to limit its activities or stand temporary losses and so cut its prices below the
cost of production until it runs competitors out of business or establishes its price
leadership, before raising prices again.

As such, our basic point is not dependent on any specific tendency of the degree of
monopoly. It can fall somewhat as, say, six large firms come to dominate a market rather
than, say, four. The fact remains that barriers to competition remain strong and deny any
claims that any real economy reflects the "perfect competition" of the textbooks. So, while
the actual companies involved may change over time, the economy as a whole will always
be marked by Big Business due to the nature of capitalism. That's the way capitalism
works -- profits for the few at the expense of the many.