Captive Capitalism- monopoly power and the myth of a free market
"Competition Is for Losers. If you want to create and capture lasting value, look to build a monopoly" Peter Thiel
Does capitalism truly value competition, or is monopoly power the default result as larger and larger corporations swallow up smaller ones? And does it matter that much to the rest of us?
The goal of the board game Monopoly is to amass properties and bankrupt your opponents. There is some strategy to the game, but much of the end result comes from the random roll of a pair of dice. Ironically, Monopoly was invented in 1903 by a feminist writer, Lizzie Magie, who wanted to highlight the destructive nature of monopolies on society. Originally called The Landlord's Game, it was meant as an educational tool about the concentration of wealth, complete with separate sets of rules for monopolists and socialists.
The game was copied by an entrepreneur named Charles Darrow during the Depression and eventually sold to Parker Brothers in 1935, where it was retooled to emphasize greedier elements. The rest is history, as Monopoly became one of the most popular board games of all time, with over a billion people playing hundreds of versions across 114 countries.
Parker Brothers was eventually absorbed by Hasbro—one of the true giants in the toy industry, though still far from a monopoly in a fast-moving marketplace.
I've encountered the phenomenon of market power mainly in four locations: theaters, stadiums, theme parks, and airports. In each of these places, businesses have a captive audience and can heavily influence the locations, menus, and prices of what is available. The result is higher prices and fewer choices than you would find in an open marketplace.
A glass of beer at a stadium can cost as much as $16 with a cost to the sellers of less than $2—a 90% profit margin! The same goes for stadium fare like hot dogs, sodas, nachos, and popcorn. They charge huge markups, and people are willing to pay because there are no alternative options. If you are hungry and tempting choices are right in front of you, price suddenly stops being a major factor.
Granted, many of us are aware that inflated concession prices help the bottom line and subsidize other costs. Movie theaters would likely be much more expensive were it not for concession stands, which make up the majority of their net revenue. Similarly, sports teams pocket most of their concession revenue, which helps fund player salaries while keeping ticket prices relatively stable.
Theme parks provide an entire day's worth of experiences, funding a large chunk of their operations through overpriced snacks and fast food that a captive audience happily gobbles up. There is something about being in a theme park that makes people choose experiences over practical concerns, while diets and budgets take a back seat.
Luckily for the cost-conscious, many venues allow people to bring outside food with some restrictions, though most avoid doing so because of the sheer inconvenience of carrying things that need to be hot, cold, or fresh.
Now, expand those examples to the entire marketplace. We may not be completely captive everywhere, but in some sectors, we are dangerously close to it. There are several economic sectors where monopolies dictate almost everything, including internet search (Google), credit (Visa), e-commerce (Amazon), social networking (Meta), smartphones (Apple), and eyeglasses (Luxottica).
In addition, there are even more industries dominated by oligopolies, where just a few large companies control the market. In theory, these companies compete with one another, but there are numerous documented cases of collusion that create a de facto monopoly. Today, oligopolies rule over airlines, automobile manufacturing, wireless carriers, parcel shipping, food and beverages, oil and gas production, media, and more. The only industries that appear immune are small retail, independent restaurants, bakeries, and skilled trades like carpentry and repair work.
Monopoly power isn't inherently bad for consumers. Larger entities enjoy economies of scale and greater efficiency, and good corporations can serve as loyal community partners and charitable donors. However, since the 1970s, monopoly power has grown unchecked, negatively affecting both our economy and our democracy.
In the early 20th century, antitrust laws reined in the massive monopolies of the day—oil, steel, and railroads. For a time, monopolies were broken up and regulated, but that progress unraveled during the second half of the 20th century. Today, mergers are common, along with the resulting layoffs and consolidation.
When it comes to monopoly power and captive capitalism, three major challenges stand out:
Prices are artificially high. Any economics student knows that supply and demand should dictate market prices. But under captive capitalism, companies can inflate prices simply to fatten their bottom line. The demand side of the curve doesn't matter much when people have little to no choice in buying essentials like food, medicine, and energy. According to a Federal Reserve study, market concentration raised prices during recent inflationary periods by as much as 25%.
Wages are artificially low. Wages are supposed to operate on supply and demand. When the job market is concentrated among just a few dominant companies, they know employees have fewer options and can underpay them accordingly. A major Silicon Valley lawsuit in 2010 revealed that tech giants had signed secret agreements not to poach each other's employees. One U.S. Treasury study concluded that wage collusion can cost workers up to 25% of their salaries, keeping employees stuck and stripping away their negotiating power.
Monopolies use their power to game the system. Because of their vast wealth, monopolistic companies can heavily influence politicians to write laws that benefit corporations at the expense of consumers and taxpayers. Furthermore, because they are deemed "too big to fail" (lest millions of jobs be thrown into chaos), they are often bailed out by the government during market downturns, a luxury most small businesses never receive. The picture at the top of this essay says it all, drawing on a famous Thomas Nast editorial cartoon from the Gilded Age, when similar monopoly power was being fought.
Today's monopolies, oligopolies, and colluders are simply doing what they are structured to do: chase profits for their shareholders. It is up to the rest of us, through our government, to regulate them when they get out of control. Once the democratic system is tilted heavily in their favor with campaign money, it becomes much harder to regain control, but they still need us more than we need them.
If we don't act soon, we could all end up paying our last pennies to the tycoon who owns Boardwalk and Park Place, complete with hotels.
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