This arguments is highly successful with US federal courts in the last decade. There is an intuitive feeling that few is better and that a consolidated industry is bound to be more efficient, better able to compete and to survive and, ultimately, better positioned to lower prices, to conduct costly research and development and to increase quality. In the words of Porter: "(The) pay-off to consolidating a fragmented industry can be high because... small and weak competitors offer little threat of retaliation".
Time one's own capacity additions; never sell old capacity "to anyone who will use it in the same industry" and buy out "and retire competitors' capacity".
A Note on the Spiteful Application of Competition Laws In many developing countries and countries in transition from Communism to capitalism, competition laws are used to reward cronies or to damage opponents. The discriminatory and partial application of such laws and regulations sustains networks of patronage and cements political-economic alliances.
This abuse of the rule of Law and the regulatory regime is further compounded by the seething pathological envy that is typical of erstwhile egalitarian societies now exposed to growing income inequalities. The mob, business rivals, political parties, and the populace at large leverage competition laws to tear down businesses and humiliate entrepreneurs whose success grates on their nerves and provokes their unbridled jealousy.
XXX. The Benefits of Oligopolies
The Wall Street Journal has recently published an elegiac list: "Twenty years ago, cable television was dominated by a patchwork of thousands of tiny, family-operated companies. Today, a pending deal would leave three companies in control of nearly two-thirds of the market.
In 1990, three big publishers of college textbooks accounted for 35% of industry sales. Today they have 62% ... Five titans dominate the (defense) industry, and one of them, Northrop Grumman ... made a surprise (successful) $5.9 billion bid for (another) TRW ... In 1996, when Congress deregulated telecommunications, there were eight Baby Bells. Today there are four, and dozens of small rivals are dead. In 1999, more than 10 significant firms offered help-wanted Web sites. Today, three firms dominate".
Mergers, business failures, deregulation, globalization, technology, dwindling and more cautious venture capital, avaricious managers and investors out to increase share prices through a spree of often ill-thought acquisitions - all lead inexorably to the congealing of industries into a few suppliers. Such market formations are known as oligopolies. Oligopolies encourage customers to collaborate in oligopsonies and these, in turn, foster further consolidation among suppliers, service providers, and manufacturers.
Market purists consider oligopolies - not to mention cartels - to be as villainous as monopolies. Oligopolies, they intone, restrict competition unfairly, retard innovation, charge rent and price their products higher than they could have in a perfect competition free market with multiple participants. Worse still, oligopolies are going global.