Was just about to say as well. The more regulated an industry is the more consolidated it will become and the higher the costs will have to be, which either get passed on to consumers and/or in cutting capacity.
I don't have a good mental model for why excluding all firms under, say, $1M would have a different consolidation pattern from including everyone, but it's not totally unreasonable to assume something simple like starting with drastically fewer companies will end with fewer companies as well (that consolidation is monotonic). There might be some nice explanation for that difference.
If regulation is what stops competition from forming, but the regulation is required for safety reasons, it makes logical sense to assist new competition into the market. This assistance should be limited to helping the startup be certified, etc, in such as way as to eliminate the barrier to entry resulting from the regulation (but not more - i.e., startups aren't getting extra help beyond that, so as not to artificially subsidize them but not their larger counterparts).
Sounds like it would create some inappropriate incentives for lawyers and others assisting with certification...
But generally I agree with the sentiment of the idea. Just not sure how to deal with further layers of problems.
Perhaps one step would be to stop thinking of corporations are superpersons, deserving of superrights. Instead, we could charter corporations and stipulate that they serve the public good.
In purely unregulated fields like web hosting, there are tens of thousands of competitors because it's easy to create one. It's true that someone could go around buying up a bunch of them (and companies have done this), but even after they're done there are still thousands of competitors remaining. If a regulatory agency wrote couple thousand pages of rules for web hosts, many existing owners would probably sell their companies rather than embark of the emotionally draining task of trying to make sense of those rules.
Ironically, as the number of competitors declines, the ones that remain will feel more free to abuse both employees and customers. This will lead to demands for more regulation, which reduces the number of competitors further, and so on it goes.
Consequently, in heavily regulated industries, it's more efficient for extremely large firms to design and implement the necessary internal gymnastics, and amortize that labor cost over a large amount of business.
Smaller firms still have to do much of the same (at some point, 1 person is the minimum in a role), but can't spread it over as large a customer base.
Or, to put it another way, it's easier to merge your way into larger profit margins in heavily regulated spaces.
The handful of banks in the U.S. that serve multiple states and fall under federal banking regulation seem even more consolidated than the baby formula industry on a variety of metrics.
Certainly more consolidated per dollar of cash flow. Probably more consolidated per dollar of net profits. etc.
Which would be the expected outcome of the theory if the baby formula industry in the U.S. were less regulated than federal banks but more regulated than state banks.
It's a similar case to cell phone providers: although there are hundreds in the U.S., all but four do not operate their own network, but rather resell the network of one of the big four.
It's an interesting question, though, how much this consolidation is due to regulation versus being a result of a natural monopoly, i.e. high barrier to entry for the type of business.
They usually have expensive and slow roaming on one of the big providers once you leave their area though.
Three mobile networks, since Sprint was merged into T-Mobile. It was also inevitable since it does not make much sense to have many different organizations install cell towers and run all that wiring all over a country the size of the US, and split a limited resource like wireless spectrum conducive to data transfer.
There were ~12,500 banks in the US as recently as 1990 (when the population was much smaller than it is today!)
Since the regulations that were passed following the great financial crisis, almost zero new banks have been founded.
https://ilsr.org/number-of-new-banks-created-by-year-1993-to...
Now in other markets a high bar of regulations conversely encourage concentration due to increase costs of meeting the regulations. Reforms like Frank-Dodds can be a mix, both making it more expensive to meet the accounting and reporting needs favoring larger companies, but also imposing rules limiting concentration of ownership. However regulation heavy fields can still be opened up by startups/new entrants if they're significantly better than competitors (SpaceX comes to mind).
It's multi-faceted game theory, not a simple rule or sliding scale.
1: https://www.mofo.com/resources/insights/210503-fcc-relaxed-m... 2: https://www.fdic.gov/regulations/laws/rules/5000-1200.html
Yes it does. That's modus tollens.
Orthogonal to administrative burden, regulatory capture, politics (dairy lobby, protectionism, whatever). Which are all also base states which must be actively thwarted.
The world is more complicated than Chicago School of Economics' Kiplingesque just so stories.
Anyways, if you can devise a way to regulate millions of people spread across thousands of organizations with even 10% less 'administrative burden, regulatory capture, politics' you will certainly become the most influential person of all the time, assuming you keep on delivering year after year.
https://fs.blog/mental-model-winner-take-all/
tldr: power laws, prefential attachment, compound interest.
I can easily see the 3 largest companies in a given sector taking 90% marketshare, or more. But to imagine 1 company taking 90% marketshare? I haven't seen a credible argument for why that would generally develop outside of some specific niche.
I hope the current world events forces the governments to rethink their strategy of keeping the telecom industry an oligopoly and decide that reducing the barrier for entry to the telecom industry is vital for the national security.