Things like this mainly occur in markets with little competition, killing of small business causes issues like this. Much of our grievances are caused by our high level of market concentration.
This was addressed by Matt Levine in today's Money Stuff. The problem was not the presence or lack of competition, it was a technical failure of the market structure. Matt:
This is a familiar story and you probably know the ending. There’s a big market (egg producers selling eggs to supermarkets etc.), and there’s a small market (egg producers selling extra eggs to each other on an electronic exchange). The price in the small market determines the price in the big market. Participants in the small market are also participants in the big market. You can spend a little money in the small market to move the price, which can make you a lot of money in the big market.
Not defending the bad actors here, but there's that whole "show me the incentives and I will predict the outcome" thing. If the market structure rewards manipulation, you get manipulation. The market structure doesn't have to be this way.
> "show me the incentives and I will predict the outcome" thing
There are supposed to be two stopgaps here.
First, the fear of going to jail for committing crimes. Secondly, the social reprisal for committing crimes that hurt people.
Like seriously these CEOs shouldn't be welcome at anyone's table or gathering in polite society as a result of their actions, bare minimum. The government should also put them in prison.
Companies bribe government and install their employees in regulatory agencies to avoid the prison sentences and other legal trouble, but I seriously wonder how any of these people are able to show their face in public without having an angry mob form.
Hiding behind a faceless corporation certainly helps with that somewhat, but in this case one of the egg companies involved isn't shy about telling us exactly who they are (https://hickmanseggs.com/about/). When there's no longer a working legal outlet for justice how long before people start leveraging the technology they have to identify the people who are hurting them and make their feelings known. We need a functioning legal system and accountability to keep things from getting out of hand, so it concerns me that corruption has been allowed to flourish and go unpunished.
While Matt is technically correct, it's much easier to maintain a conspiracy like this when you have a small number of participants with a high concentration of share.
If power is more diluted among a greater number of participants you are way more likely to see defectors, which would provide accurate pricing data to the market and cause the conspiracy to fail.
Yes. Specifically in this case, "defect" is the good case and cooperate is price fixing cartel. So with more prisoners, the chances of someone choosing defect goes up. So then everyone else choose defect, breaking up the price fixing cartel, leading to market forces working and lower prices for consumers.
That's just a cop-out. If there was no index the egg producers could easily have found other ways to collude to keep prices high. They do the same thing in Europe and there is no egg index to blame.
> Not defending the bad actors here, but there's that whole "show me the incentives and I will predict the outcome" thing. If the market structure rewards manipulation, you get manipulation. The market structure doesn't have to be this way.
I think that’s partly right but it’s much broader than that. The incentives in capitalism in general very frequently don’t line up with what’s best for consumers or even humanity. There are numerous industries where the financial incentive to drive down cost (poor quality products) and increase price (consumer strain) is sooo strong. Far stronger than weak regulatory incentives.
So while you’re right, that’s kinda the whole point of the article too.
Even without the market structure, the incentives are not aligned to make the cheapest possible yet high quality eggs for consumers. I mean in what universe does that make more profits for companies. But that would be better for humans. You’re right, we should care that the structure of the entire economy is deprioritizing what’s best for humans. It’s supposedly only the best structure we’ve found so far.
I mean sheesh. The fines for bad behavior like this need to be like N + some % of N. Where N is the profit they made (MINIMUM), and you scale the % of profit based on how bad the issue is. Companies aren’t people. They can take bigger fines. Investors just need to account from it before they spend millions upon millions in extravagant excess on criminal CEOs like these.
And notably, we used to have a somewhat progressive corporate income tax which, at least on paper, provided a quantitative disincentive against too much consolidation. Sometimes the merger of A and B would pay a higher rate than A and B separately. And we gave that mechanism up.
We were stuck in the Gilded Age for decades before Roosevelt came along and started big trust-busting efforts. I expect a similar situation to play out here. We're probably in the middle of it in retrospect.
I think at the end of the day, we're still able to produce really effective technology and products. Like the economy is still functioning. I feel like this is different from the Soviet situation where the problems were more related to product quality and shortages and black markets.
> we're still able to produce really effective technology and products
There's a pipeline for that, and that pipeline has been broken, so that'll dry up. It's gonna take some years before we see the effects of it, but it ain't gonna be pretty.
Al Franken has related the difficulty he had convincing Democrats and Bernie Sanders to sign on to fighting the Comcast Time-Warner merger until they determined it was beneficial to themselves to oppose it.
This podcast mentions a summarized version of the story at the beginning with an impersonation. I remember another, maybe later on in the interview portion, where he explicitly called out Sanders' reluctance.
An assumption required to make capitalism work efficiently is that customers have meaningful choices. Trustbusting is one of the important roles of the government, if it were functional.
I'm not typically a fan of government intervention in markets but Canada's marketing boards do stop this sort of concentration, so while we have higher average prices we do not get massive swings in prices, nor the physical conditions that come directly out of production consolidation that lead to events (or justifications) like avian flu at the same scale.
OP is talking about Canada's supply management system in place in some areas (including eggs). Supply management is a government system that basically puts all large scale production of these items under both a quota system (farmers need to get/buy a license/quota), and fixed pricing to the farmer.
It is a form of farming subsidy that was specifically structured to avoid passing money through the government, and structured to control price volatility.
This is separate from the commercial market concentration in Canada, which is definitely real. To a degree, this is just the reality of being a smaller market. The depth and breathe of the American economy is definitely at play here.
If you compare Canadian super market consolidation vs Germany or UK (for example), you find a much more similar situation.
A free market with functioning anti-monopoly enforcement is a simple solution. Why trust in a government enforced Supply Management system when the same government can't manage to punish a clear criminal conspiracy to price-fix?
Most true small businesses can't exist in markets with a lot of competition. Highly competitive markets have a lot of fluctuation and businesses with little capital fold when there's a downturn.
In fact, most markets naturally go from high competition to monopoly or oligopoly. You can see this in chips, cars, airplanes, steel, ecommerce(Amazon) and beyond. Indeed, many oligopoly situations only fail to be monopolies through either antitrust activity or through nation-states supporting their competitors (chips).
Agriculture in particular tends to be geographically dispersed so it's harder to have absolute monopolies. But some "harking back" claim of "if we only had small business, all the predatory stuff wouldn't happen" really fails to understand the dynamics of markets. Scale in agricultural production is what allows the low prices you get in stores - But $10 cage-free organic eggs are available at my local coop for those who love small businesses (though I prefer the $2 cage free eggs at nearby Grocery Outlet).
False. There is no Economic Law of Consolidation such as you posit here. Haircuts are a mature market, yet plenty of small providers thrive. Counterexamples to your extraordinary claim abound.
The actual economics in highly competitive markets depend on what is known as the Minimum Efficient Scale, which in turn depends on the shape of the cost function.
QB House and its many imitators would like a word. It's a genuine mystery to me why these "fast haircut" chains are ubiquitous in Asia but unknown in the West.
I think perhaps the USA's modern decline right into the toilet is the result of changes made in the 80's, like gutting anti-trust. What we're seeing now is just the visible manifestation of corruption that has been allowed to grow and metastasize since then.
>the result of changes made in the 80's, like gutting anti-trust.
The '90s didn't help a lot either. cf. the repeal of Glass-Steagall[0] which, arguably, did much more to damage the US economy (there's a direct line from its repeal to the 2008 financial crisis) than a lack of anti-trust enforcement.
That said, dismantling anti-trust enforcement (which was pretty hit or miss anyway) didn't help either.
