In non-competitive markets, prices rise

In an article in The Washington Post entitled ‘How America became uncompetitive and unequal’, Lina Khan and Sandeep Vaheesan discuss how in markets that are serviced by few, dominant players (such as monopolies or duopolies) prices tend to rise.

“Since the early 1980s, executives and financiers have consolidated control over dozens of industries across the U.S. economy. From cable companies and hospitals to airlines, grocery stores and meatpackers, where once many small and mid-size businesses competed, today we see a few giants dominate.”

They continue,

“Take the $2.5 trillion health-care industry, where rising costs are fueled in good part by consolidation. A frenzy of mergers starting in the 1990s has meant that most Americans today live in areas where there is little competition among hospitals. Studies show that after merging, hospitals routinely raise prices. As detailed in Time last year, many hospitals now mark up services from a routine blood test to chemotherapy by as much as several hundred percent. In health care alone, market power redistributes hundreds of billions of dollars in wealth upward annually.

The same is true in other sectors. Meager competition among cable providers and the growing market power of large content owners have enabled Comcast, Time Warner Cable and others to raise the price of subscriptions at close to three times the rate of inflation since 2008. High-speed broadband presents a similar picture: Americans now pay more than double what European consumers pay. Merger mania in the airline industry — where eight majors have combined to create four giant carriers over the past decade — has resulted in fare increases of as much as 65 percent on certain routes.”

The opposite has also been found to be true. In ‘Free: How Today’s Smartest Businesses Profit by Giving Something for Nothing’, Chris Anderson discusses how in markets that are serviced by many, highly competitive companies, prices tend to fall.

Hey. I’m Alex Murrell. I'm a Planner at Epoch Design in Bristol where I help deliver highly creative, innovative and effective pack, instore and online communications for some of the world’s biggest FMCG brands. Want to know more? You can find me on Twitter or LinkedIn.

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