The meltdown, the culling and the mergers: a less competitive future?

The collapsing economy is forcing re-thinks about the structure of entire industries - not just the banking and finance sector. With weaker firms on smaller market shares struggling to find capital their survival is more at risk than the "too big to fail" multi-national corporates and their going under will never make the headlines the way General Motors, AIG - or even F&P - does. What is at risk in the aftermath of the turmoil is that the only ones left will be merged super-corporates that are at least tacitly backed by the government. They don't need to be particularly responsive or efficient to collect a govt. handout - they just need to be big enough to have survived - and when they come through the other side it will be cream from here to Africa for the big boys.

Given this is the way things may well end up I'm glad the economic blog. TVHE, has lambasted the NZ Herald's bizarre suggestion that the Commerce Commission should be "temporarily relaxing some elements of competition law to help the corporate sector," and notes:

There is too much of a micro focus on “keeping a businesses afloat” - the important issue is actually making sure that the allocation of resources across the economy is as efficient as possible. Allowing prices to get stuck outside of their competitive level isn’t going to help this …

If the recession is prolonged - and most seem to be forecasting something like a depression - then the risks are that the small, innovative (but capital poor) operations that keep the large firms honest will disappear. It's not as if small players have any lobbying powers, compared to their larger rivals, to prevent anti-competitive mergers. The result? Corporate consolidation and market dominance at the expense of long-term competition.