This 1889 cartoon by Joseph Keppler shows big business monopolies sitting in he US senate under a plaque stating "This is the Senate of the Monopolists by the Monopolists and for the Monopolists!" President Theodore Roosevelt took on the monopolies with antitrust legislation. Credit: Wikimedia
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As a general rule, if you can name all the big players in a market, or even just count them, there’s something wrong with that market. References to a “Big Six” or a “Big Four” or some other small number should be a warning sign.
That’s because when there are relatively few big players in a market, companies that serve most of the customers in that market, there’s a risk that they don’t have to compete as fiercely as they should to keep their customers and win new ones. That means higher prices, worse service, less innovative products for households. For the economy more widely, it means underinvestment in the productive capacity that drives higher growth and higher wages.
Together, those things leave many people feeling ripped off, ticked off, and wondering if the system really is rigged against them.
At the Social Market Foundation, we have investigated the markets that matter most for voters’ experience of the market economy, those focused on consumers, which collectively account for about 40% of all consumer spending – cars, groceries, broadband, mobile telephony, landline-only phone contracts, electricity, gas, personal current accounts, credit cards and mortgages.
Sadly, we found that people’s suspicions of a rigged model are justified. Most of those markets aren’t working as well as they should. Eight of the ten are concentrated, a large proportion of sales made by a small number of suppliers. Only the markets for cars and mortgages meet the description most people would have of a free and competitive model.
We also identified a link between higher levels of market concentration and lower levels of customer service and trust. That’s understandable when you consider the way people are treated.
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