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June 17, 2017, 2:50 p.m. EDT

America’s most successful companies are killing the economy

Winner-take-all companies, including Alphabet and Wal-Mart, are driving down wages and destroying communities

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By Rex Nutting, MarketWatch


MarketWatch photo illustration/Getty Images
In America, you can have anything you’d like, as long as it’s made by one of these companies.

Dominant U.S. companies have delivered amazing benefits to consumers and shareholders, but their success has also damaged our economy.

The problem with winner-take-all capitalism is that the winners take it all and leave a mess for the rest of us to deal with.

These companies have developed fantastic brands and wonderful products and services, but the downside to the proliferation of superstar companies is equally real: They are destroying local economies, driving down workers’ wages, shackling growth, depressing entrepreneurship and increasing the inequality that’s ripping our country apart.

And for all the talk about disruptive technologies, it’s getting worse.

Census Bureau statistics show that about three-fourths of U.S. business sectors have become more concentrated in the past 20 years, as indicated by an ever-growing market share for the top companies in hundreds of sectors, from dog food to health insurance.

About 10% of the economy is deemed to be highly concentrated, with almost all of the revenue in those niches going to just a few companies. Many industries are effectively controlled by fewer than 10 companies.

And it’s not obscure backwaters of the economy. These are goods and services we buy every day.

Think of big-box retailers, airlines, express-delivery companies, drug makers, car makers, insurers, banks, media companies, phone companies, software companies, electronics makers, aerospace firms, vast swathes of the internet and even slaughterhouses. Think of companies like Alphabet /zigman2/quotes/205453964/composite GOOG +3.23% , Apple /zigman2/quotes/202934861/composite AAPL +6.98% , Facebook /zigman2/quotes/205064656/composite FB +2.40% , Microsoft /zigman2/quotes/207732364/composite MSFT +2.81% , General Motors /zigman2/quotes/205226835/composite GM -2.35% , AT&T /zigman2/quotes/203165245/composite T +4.52% , UPS /zigman2/quotes/201245396/composite UPS +1.76% , Altria /zigman2/quotes/208895754/composite MO +0.28% , Wal-Mart /zigman2/quotes/207374728/composite WMT +1.24%  and American Express /zigman2/quotes/203805826/composite AXP +3.00% , and dozens more.

The largest highly concentrated businesses
Segment Market share of top four companies Annual revenue in segment (2012)
Warehouse clubs & supercenters 93.6% $406 billion
Drug wholesalers 72.1% $319 billion
Auto & truck manufacturing 68.6% $231 billion
Drug stores 69.5% $230 billion
Mobile-phone service 89.4% $225 billion
Airlines 65.3% $157 billion
Administration of pension funds 76.3% $145 billion
Landline-phone service 73.4% $142 billion
Cable TV 71.1% $138 billion
Airplane manufacturing 80.1% $113 billion
As of the 2012 Economic Census

The list includes almost all of the biggest companies in America. Almost all of the gains in the stock market come from these few corporations. And they earn almost all of the profits.

In many cases, the dominant companies have licenses, patents, copyrights or other intellectual property that lock out potential competitors. They have powerful brands that command a premium. They take advantage of network effects, which create natural monopolies. They lobby governments for subsidies or special regulatory favors. To snuff out competition, they acquire potential rivals or lock up supplies of essential inputs, including skilled labor. They control distribution channels.

Must read: Anheuser-Busch InBev shuts out craft beer brewers by hoarding hops

In some cases, those few companies act more like a cartel than they do competitors.

Their size gives them economies of scale that smaller rivals can’t match.

In other words, these companies are protected by high barriers to entry, what famed investor Warren Buffett calls a “moat.” A moat protects the company, keeping profits higher than they would be if it faced real, fair competition.

“So what’s the problem?” you may say. After all, these companies are winners, they’re giving the people what they want — stop punishing success.

For decades, economists, jurists and policy makers thought the same thing. As long as consumers weren’t harmed, they ignored the increasing concentration of American and global industries, figuring that there wasn’t much to worry about.

But lately, there’s been a lot more attention paid to the downside of the monopolization of America.

Here are the three biggest problems with our winner-take-all economy.

/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 2,665.79
+83.37 +3.23%
Volume: 1.52M
Jan. 28, 2022 4:00p
P/E Ratio
25.67
Dividend Yield
N/A
Market Cap
$1713.31 billion
Rev. per Employee
$1.77M
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 170.33
+11.11 +6.98%
Volume: 175.89M
Jan. 28, 2022 4:00p
P/E Ratio
28.26
Dividend Yield
0.52%
Market Cap
$2600.76 billion
Rev. per Employee
$2.38M
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 301.71
+7.07 +2.40%
Volume: 21.81M
Jan. 28, 2022 4:00p
P/E Ratio
21.54
Dividend Yield
N/A
Market Cap
$819.62 billion
Rev. per Employee
$1.92M
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/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 308.26
+8.42 +2.81%
Volume: 49.65M
Jan. 28, 2022 4:00p
P/E Ratio
32.80
Dividend Yield
0.80%
Market Cap
$2247.86 billion
Rev. per Employee
$1.02M
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/zigman2/quotes/205226835/composite
US : U.S.: NYSE
$ 50.24
-1.21 -2.35%
Volume: 26.65M
Jan. 28, 2022 4:00p
P/E Ratio
6.71
Dividend Yield
0.00%
Market Cap
$74.70 billion
Rev. per Employee
$844,761
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/zigman2/quotes/203165245/composite
US : U.S.: NYSE
$ 25.21
+1.09 +4.52%
Volume: 76.75M
Jan. 28, 2022 4:02p
P/E Ratio
9.13
Dividend Yield
8.25%
Market Cap
$172.24 billion
Rev. per Employee
$734,348
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/zigman2/quotes/201245396/composite
US : U.S.: NYSE
$ 198.25
+3.42 +1.76%
Volume: 3.05M
Jan. 28, 2022 4:02p
P/E Ratio
26.71
Dividend Yield
2.06%
Market Cap
$169.33 billion
Rev. per Employee
$173,748
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/zigman2/quotes/208895754/composite
US : U.S.: NYSE
$ 50.48
+0.14 +0.28%
Volume: 7.55M
Jan. 28, 2022 4:02p
P/E Ratio
38.04
Dividend Yield
7.13%
Market Cap
$91.78 billion
Rev. per Employee
N/A
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/zigman2/quotes/207374728/composite
US : U.S.: NYSE
$ 137.52
+1.68 +1.24%
Volume: 7.98M
Jan. 28, 2022 4:00p
P/E Ratio
48.15
Dividend Yield
1.60%
Market Cap
$376.80 billion
Rev. per Employee
$248,679
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/zigman2/quotes/203805826/composite
US : U.S.: NYSE
$ 177.06
+5.16 +3.00%
Volume: 4.26M
Jan. 28, 2022 4:02p
P/E Ratio
17.72
Dividend Yield
0.97%
Market Cap
$133.15 billion
Rev. per Employee
$685,447
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