Everyone knows what a monopoly is. (besides a great board game.) Not many people are familiar with oligopolies, though, even though there are many more of them, than there are monopolies.
I've read oligopoly watch from time to time, but just spent some time reading through about 10 posts. The site is maintained by Steve Hannaford. Here is his about page for the site:
This site is an attempt to make sense of the business pages in the newspaper, particularly the stories about mergers and acquistions. I am developing a theory about how and why big companies keep growing bigger, and some of the dynamics behind their moves. This fits into a larger work I call "Shelf Life, Shelf Space, Mind Space" that I am working on. In part, this blog is my way of keeping a diary of the many moves toward oligopoly that take place every day.
Are oligopolies sinister? Very possibly. But I think it's more useful to see how and why they work than simply rail against globalism and greed. While there are hatefully crooked businessmen (take any set of former Enron or Tyco executives for a start), most oligopolies are based on struggles for survival, not a result of innate evil. Like those proverbial sharks moving forward, businesses either grow or fail, and since most mature markets have limited growth potential, companies often grow by buying other companies. If nothing else, it's fascinating to see how they do it.
I read the Media Monopoly awhile ago and was intrigued and outraged at the same time of how much power a relatively small # of companies have amassed in the media industry. Intrigued because these companies have created amazing machines and outraged because of the potential consequences of abuse of this concentrated power.
I specifically like how Steve covers these companies with an editorial perspective that is balanced between these two juxtaposed perspectives: awe and fear.
He is extremely thorough in reporting the facts about mergers and acquisitions, the ones he gleans from news articles I presume and with a bit of digging too into company and trade websites. But he also manages to write the breaking stories from the perspective of the industry's competitive characteristics.
Additionally, I appreciate how Steve pulls back some of the inner workings between corporations and the government. One example is an article on Comcast getting a major taxbreak for building their headquarters in downtown Philly:
The problem of course, that losing Comcast, now located in the city, would be a dire blow to Philadelphia, which has few enough major corporate headquarters. They can hold the city at ransom, as other corporate leaders and sports owners have, by threatening to move out the suburbs, across the river to New Jersey, or to some Southern state with low cost of living and no labor issues.
That's because big corporations (and sports franchises) are oligopsonies. There are only a limited number of Fortune 500 headquarters on the market, and a large number of cities, counties, and states bidding to have them locate their headquarters in their locales. And with the Internet, headquarters are less tied than ever to any specific location. Even Boeing can move its headquarters overnight to Chicago and leave Seattle in the lurch.
These "consumers of location" can be very picky and make demands of the suppliers, just like beef producers hold all the aces when they negotiate with the cattle ranches. And that's why states and city are willing to make risky bets on gaining a long term advantage in return for a major shortfall in tax revenue.
Another post on Boeing highlights how a defense oligarch, who the government is extremely dependent upon for maintaining a veil of competitiion in the defense contractor business, will only ever get a slap on the wrist, even for committing fraud.
Dave also has an interesting theme through his posts that: "Oligopsonies often generate oligopolies. " What is an oligopsony? ("I didn't know either.") Here is part of his post on that. See his post for examples.
An oligopsony is a market in which there are few buyers, in other words, the converse of an oligopoly... Oligopsonies often generate oligopolies. You can't negotiate very well if the company you are talking with is enormous and you are tiny. But if you are Sony Music and you want to negotiate with Viacom Radio, you'll at least get in the door and you'll talk as equals.
One story idea for him would be the current struggle between IAC and the hotel and airline chains and how the oligopoly of online travel companies are forcing travel suppliers to rethink their internet strategies, covered by this fairly recent businessweek story. Here's an excerpt:
But the script for InterActiveCorp hardly is assured of a happy ending. The company faces competition in nearly every market. And the most serious threat may come from InterActiveCorp's own business partners -- hotel chains, airlines, banks, and others -- who want to rein in Diller's ambitions, since his profits often come out of their pockets. They vow to fight back. On Sept. 8, for instance, Mandalay Resort Group (MBG ) in Las Vegas, a casino chain that owns the Luxor Las Vegas Resort Hotel & Casino, announced that it had pulled its top properties off Expedia and Hotels.com sites because Expedia insisted on controlling the price of the rooms sold on the Web site. "For people in the hotel industry, it was like crack cocaine. We give them rooms, and they fill them," says John Marz, Mandalay's senior vice-president. "But we lost control, and that's what everyone is trying to get back." For now, such efforts show little sign of slowing down Diller's Web express. But if he botches relations or squeezes partners too hard, resistance could grow.
Towards my goal of creating an online media empire, similar in size to Diller's (not necessarily in approach), and given the current makeup of the media industry (online and off), learning how oligarchs work is something I am very interested in. So, I'll be adding this weblog to my list of must reads. If you are into reading business analysis and are a bit leary of big business getting bigger, I reccommend the Oligopoly Watch.