“Twitter as a company has always been my sole issue and my biggest regret. It has been owned by Wall Street and the ad model. Taking it back from Wall Street is the correct first step.” – Founder Jack Dorsey
The financial sector is heavily monopolised – but it is also a key driver of monopolisation in other parts of the economy, in several ways.
For example, the Mergers & Acquisitions (M&A) departments of large investment banks contain the “dealmakers” who earn enormous fees (for themselves and for the banks) for putting mergers and acquisitions together. They are not just passive facilitators of these mergers, but in many cases actively drive them, encouraging mega-mergers which can net them hundreds of millions.
As one M&A focused website notes:
“In broad buy-side deals,you show a company dozens or hundreds of potential acquisition targets and try to find something that interests them; in broad sell-side deals,you run an “auction” where you pitch the company to (potentially) dozens of buyers.”
A second way that finance drives monopoly is by throwing cheap money at powerful and wealthy monopolists like Amazon, while starving their competitors. Entrepreneurs speak of “kill zones” where they cannot access financing because they are judged to be operating in areas where the monopolists can kill them at will. This is not just a passive feature of markets: it is often a deliberate ploy, to help monopolists first use predatory pricing to kill competitors, then milk the monopoly. As one analyst put it:
“The goal . . . is to find big markets and then dump capital into one player in such a market who can underprice until he becomes the dominant remaining actor. In this manner, financiers can help kill all competition, with the idea of profiting later on via the surviving monopoly.”
Third, Private Equity firms in particular very commonly buy up lots of different firms in all sorts of sectors, like funeral homes, dentistry, or social care – often with a focus just on local geographical niches. They talk of ‘roll-ups” where they roll up a number of competitors into one structure of ownership and control, creating monopoly power. As top US antitrust official Jonathan Kanter said: “many of the mergers we’re confronting are as a result of [private equity] roll ups.” (See some good examples of that, here.)
Fourth, finance has become an intensely monopolised sector, in its own right. Here are two examples of this trend: one from the UK, the other from the US.
Fifth, there has been a big and growing alliance and interdependence between Big Tech firms and finance, in what has been called “the Financialisation of Big Tech”. Brett Scott’s acclaimed 2022 book Cloudmoney begins with this:
There is a sixth nexus between finance and competition, which is barely understood. It concerns what sometimes gets called “competitiveness” – a highly confused but politically potent idea that countries need to “compete” with each other to attract financial and other activity from around the world. Read more about this here.
The Balanced Economy Project will be working extensively in this area – watch this space.