Chris of Stumbling and Mumbling writes about diseconomies of scale and big corporate mergers.
The bigger organizations grow, the more inefficient they become. (The U.S. government is the biggest organization and the most innefficient of all, but more on that some other time.) So when two big companies merge, they become one less efficient company. But what the bigger company does get is better bargaining power. Everyone who studied economics knows that a monopoly is the best place to be; monopolies can maximize the price of its products.
For example, 10 companies might be able to make widgets for $1.00 each, but they would have to sell them for $1.20 because of the competition from many other firms. If they all merged into a single firm, the manufacturing costs might rise to $2 per widget because of diseconomies of scale, but now the one company has a monopoly and raises the price to $5.00 widget, lowering demand to half as many widgets as before, yet the one inefficient company producing and selling half as many widgets is many times more profitable.
We see from the example above that laissez-faire economics produces an inefficient economy that benefits the rich owners of big companies over the the middle class who have to pay higher prices for fewer goods.
The government needs to step in and prevent companies from getting so big. Unfortunately, it's the CEOs of the big companies who are donating money to politicians' campaign funds. This explains why there's no impetus to enforce antitrust laws.
Comments