Supplier Protection
In economics, a monopoly is defined as a market where there is only one supplier. In other words, it is defined as an absence of competition. Monopolies have existed throughout time. The basis of every kingdom was a monopoly. As long as human settlements have existed some form of monopoly has existed.
The problem today is often in identifying a monopoly. Is Facebook a monopoly? They will claim that other platforms compete with them in various areas. Is Google a monopoly? Sure, there are other search engines, but would you survive if I forbade you from using Google? Google has over 80% market share. Most computers and mobiles come with Google as default, in my opinion, it is certainly a monopoly.
Then there is a market definition argument.
Is Amazon a monopoly? Well, Amazon would say that it is a retailer and it occupies a very small share of the retail market. Probably why it bought Whole Foods so that this argument would hold water.
In today’s environment, it has become harder and harder to pin down monopolies.
But why are monopolies such a bad thing? Are there not diminishing costs to scale? As they become bigger does it not get cheaper for them to make things? Sure it does, but…
Back in the late 1800s America was filled with monopolies, Oil monopolies, Railroad monopolies, and Electricity monopolies. Often what happens is that when you are the only game in town you get complete pricing power.
Take electricity; today, it is classified as a utility and is highly regulated. You cannot go around raising prices willy-nilly. It was not in 1890. So a company supplying electricity could increase the prices without cause. If you don’t like it, you can disconnect your power. The consumer had no choice.
Also, one large company could acquire all the rest of the competitors and eliminate all competition and choice. This is exactly what a gentleman by the name of John Rockefeller did. He created a Trust and brought all of the companies under the Trust. The Trust was solely controlled by him. So while there were many companies and the illusion of choice, there was none.
A Senator from Ohio, John Sherman sponsored a bill which went on to be called the Sherman Act which broke such Trusts and introduced Anti-Trust action.
A trust is an arrangement by which stockholders in several companies transfer their shares to a single set of trustees. In exchange, the stockholders receive a certificate entitling them to a specified share of the consolidated earnings of the jointly managed companies.
Toward the end of the 19th century, trusts come to dominate a number of major industries, destroying competition. For example, on January 2, 1882, the Standard Oil Trust was formed. Attorney Samuel Dodd of Standard Oil first had the idea of a trust. A board of trustees was set up, and all the Standard properties were placed in its hands. Every stockholder received 20 trust certificates for each share of Standard Oil stock. All the profits of the component companies were sent to the nine trustees, who determined the dividends. The nine trustees elected the directors and officers of all the component companies. This allowed Standard Oil to function as a monopoly since the nine trustees ran all the component companies.
The Sherman Anti-Trust Act authorized the federal government to institute proceedings against trusts in order to dissolve them. Any combination “in the form of trust or otherwise that was in restraint of trade or commerce among the several states, or with foreign nations” was declared illegal. Persons forming such combinations were subject to fines of $5,000 and a year in jail. Individuals and companies suffering losses because of trusts were permitted to sue in federal court for triple damages.
Source: National Archives
Incidentally, it is the same Trust structure that has been weaponised by all the so-called Philanthropists to hoard their money and keep it safe from being taxed.
But I digress.
The Sherman Act was meant for consumer protection. If a company was acting like a monopoly and squeezing the customer then anti-trust action could be initiated against such a company. There have been over 140 antitrust cases fought in the US since the introduction of this bill
Anti-trust cases have also been fought when companies have acted in a manner that has prevented competitors from entering a market. The most famous of these was Microsoft bundling the Internet Explorer along with Windows. Windows in the late 90s was a true monopoly and had close to 95% of the market share. By bundling IE, they were making it impossible for other browsers to enter the market.
The Sherman Act and competitive authorities across the world protect the demand side of the economy.
As we study in economics there are always two sides to the market — Demand and Supply.
The current state of competition laws ensures that the demand side is not hurt but they don’t do much about the supply side.
When Swiggy started in Bangalore back in 2016, they used to take a respectable 10% — 15% from the restaurants to provide delivery services and sourcing the orders. Their popularity grew, their market power grew and their ability to negotiate grew. They went from 15% to 25% and are now at 35%. A third of whatever you are paying for your food just goes to Swiggy.
When you order something from Amazon, sellers are fighting one another to get into the buy box, this involves offering the lowest price and highest service quality. At the same time they have to pay Amazon a percentage based on category which can go as high as 25% and then there is a closing fee and a shipping fee and other fees.
I suppose you see a pattern here.
The consumer gets a great deal! They get the lowest prices. But the producer or the supply side of the economy is getting squeezed by these monopolists who offer them no other way out.
For gig workers, the situation is even worse.
Meet Rakesh, a delivery partner with one of India’s top food delivery platforms. This chap is literally a machine, pulling off 100 deliveries a week and 14-hour days. His hustle earned him a gold-level rating, unlocking some sweet perks. For context, some food delivery companies have a ranking system split into gold, silver and bronze, based on how much and how well their delivery partners work. When their ratings go up, so do their perks. And for Rakesh, that translated into a company-sponsored health insurance policy for him and his family.
But then, out of nowhere, Rakesh’s wife got really sick. He had to take time off work. And bam! His ratings tanked. See, these platforms use automated systems to monitor everything — work hours, earnings, customer feedback, you name it. So, when Rakesh wasn’t working, his rating dropped like a rock. And with that, he lost his insurance benefits and ended up paying over ₹1,00,000 for his wife’s hospitalisation out of pocket.
Source: Finshots
This is true across the world. Not only are the workers not classified as employees, but they do not have the flexibility to show up when they please and turn off when they don’t. The companies want them to work almost like automatons who are there to fill in statistics on their dashboards.
Somebody needs to protect them?
Our comfortable lives are currently standing on the backs of micro and small entrepreneurs who are being squeezed to their bones by platforms that control all of the market access.
Every corporation operates on the principle of maximising shareholder returns. They are ruthless and immoral when it comes to delivering that. While there are laws to protect the consumer there are none that protect the suppliers and this needs to change.
