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100 Tips for a Better Life

65. You will prevent yourself from even having thoughts that could lower your status. Avoid blocking yourself off just so people keep thinking you’re cool. 

 

What does that mean?

Comparative advantage and when to blow up your island

You still seem to be missing the key point: if you want to claim that industries tend toward concentration in general, citing particular concentrated industries isn't going to cut it.

 

Well... I gave you some examples in trillion-dollar industries and asked for counter-examples.

Many of your counter-examples -- car dealerships, spas, hair salons, etc -- are niche markets.

Few of them were multi-billion industries, and they provide more examples of consolidation.

Just google for "consolidation in restaurant industry" and you will find articles like "6 reasons for restaurants' massive consolidation wave", "Deals and consolidation dominate restaurant industry".

How about the small restaurants? According to "Food Delivery Consolidation: Good For Now, But Not For Long", platforms such as Uber Eats and GrubHub are taking 10% to 40% of gross transactions:

"With the rise in demand for their service, combined with the dire situation COVID-19 has created for most of the population, platforms such as Uber Eats and GrubHub are facing increased scrutiny over restaurant fees that can range from 10% to 40% of gross transactions, according to restaurant owners. (...)

In the future, retailers and customers can expect to pay even more in delivery fees, as the few delivery conglomerates monopolize the market and limit retailers’ ability to sustain a profitable business."

Comparative advantage and when to blow up your island

 Electronics isn't.

 

Isn't it? Think of a subcategory.

I could go on and on.

 

Retail has a long tail.

Retail is a prime example of consolidation -- think of Walmart,  

Sales by the 20 largest food retailers totaled $515.3 billion in 2016, accounting for 66.6 percent of U.S. grocery store sales, up from 42.2 percent in 1996. Amazon acquired Whole Foods in the summer of 2017. (Source)

Fast forward to 2020, "Amazon and Walmart are like two elephants wrestling, and all the other retailers in the U.S. are the grass" (Source).

 

 

Telecoms is concentrated, though it's become less concentrated in recent decades.

Telecom is another classic example of consolidation.

A long antitrust case completed in 1984 led to the old AT&T being broken into seven regional Bell operating companies and the much smaller new AT&T.

Less than 30 years later, in 2009 the Department of Justice started to look into whether AT&T and Verizon were abusing the market power they had amassed in recent years.

Now... you don't have to take my word for it. Google for "consolidation in _____ industry" and you are going to see the phenomenon being repeated everywhere.

Or read "America’s monopoly problem, explained by your internet bill".

Comparative advantage and when to blow up your island

Of course there have been particular cases where an industry consolidated during a particular period.

 

That period being... any moment in time.

 

You made a much stronger claim: that industries in general tend toward consolidation. Pointing to two or three examples where industries consolidated does not provide much evidence for such a claim.

 

I didn't point to "two or three examples", but eleven business sectors dominated by huge conglomerates.

 

On the other hand, pointing to examples where industries did not consolidate provides significant evidence against such a claim.

 

You responded with a single sector: services.

Even then, I gave a counter-example showing how big companies can drive small companies away.

And you see that happening all the time: Starbucks, McDonalds, etc.

The consolidation is a process, it didn't finish yet.

Comparative advantage and when to blow up your island

Restaurants, car dealerships, spas and hair salons, construction, plumbers and electricians, doctors and lawyers.

 

What you are saying is that services can be provided by small companies.

Fair enough.

But we still can see consolidation there.

Starbucks uses a tactic known as ‘clustering’. They’ll build several cafes right in the same area to obliterate competition. This costs a lot of money, but they can afford it... They even use a strategy called ‘predatory real estate’. They pay more than market rate rents to keep competitors out of a location. 

 

 

Even in some of the sectors you list - like automotive manufacturing - we haven't seen much net consolidation. We haven't seen a lot of new entrants, but's it's not like the number of car manufacturers is rapidly decreasing either. It's at an equilibrium, and that equilibrium has a lot more than just one company - which is not something you'd see if economic forces generally favored consolidation.

The American automotive market consolidated from more than 250 manufacturers in 1909 to fewer than 50 by 1930. How many companies are there now?

One more example:

At the end of 1985 there were 18,000 banks in the United States. By 2007, this had been reduced to just 8,534, and since then has dropped further. Today, the ten largest U.S. financial institutions own more than 50% of total financial assets.

Comparative advantage and when to blow up your island

There are many industries where companies do not tend to consolidate

 

Can you give me a few examples? I'll list a few important industries:

  • Automotive
  • Construction
  • Electronics
  • Financials
  • Healthcare
  • Insurance
  • Internet
  • Oil and gas
  • Pharmaceutical
  • Retail
  • Telecommunications

 

In each one of these, you'll find a bunch of big players.

For example:

  • Automotive
    • Volkswagen (Germany)
    • Toyota (Japan)
    • Daimler (Germany)
    • Ford (US)
    • Honda (Japan)
    • General Motors (US)
  • Internet
    • Google
    • Facebook
  • Retail
    • Walmart
    • Amazon
    • Costco

 

Even if you consider new entrants (such as Tesla) we are still talking about a few companies that dominate the industry.

Can you list any important sector where we don't see consolidation?

Have the lockdowns been worth it?

By ‘lockdown’ we refer to the thing that the US, UK and China have been doing, and what Sweden didn’t.

 

You should also mention that the approach in the US is not uniform.

Although many states had blanket lockdowns, some were a patchwork of rules, with cities and counties mandating their own restrictions.

Also, a hard lockdown demonstrated to be very useful to flatten the curve in New York.

Have the lockdowns been worth it?

The average number of life expectancy years lost for a death by COVID is estimated to be ~10 years so 50k COVID deaths ~= 500k QALYs lost. 

 

Where did this number come from?

The life expectancy of a 65 years old man is 19 years.

Source: Life Expectancy Calculator

Now, you must consider that Peru managed to reduce their death rate to ~0.1% with a lockdown. The situation is terrible but it could have been worse -- if they didn't act.

So: your analysis is minimizing the cost of a death and failing to take into account the reduction in the number of deaths thanks to the lockdown.

Comparative advantage and when to blow up your island

What we see in reality is that companies tend to consolidate into bigger and bigger conglomerates.

It's easy to see why.

As small companies compete, you naturally get market leaders. As these companies get larger they become more efficient at producing goods and services. They invest in mass production techniques in order to produce goods more cheaply than their competitors. They buy raw materials at cheaper prices because they buy in bulk. They expand specialization amongst their workforce. The bigger they get, the easier it is to make money.

When two market leaders merge they achieve massive economies of scale. This forces others to merge in order to compete, leading to ever greater concentration. Monopolies often buy their rivals.

It's not a matter of being "evil", it's just a natural outcome of capitalism. If they don't, a competitors will.

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