tag:theconversation.com,2011:/fr/topics/mergers-11052/articlesMergers – The Conversation2024-02-28T12:34:27Ztag:theconversation.com,2011:article/2244712024-02-28T12:34:27Z2024-02-28T12:34:27ZWhat’s next for $25B supermarket supermerger after FTC sues to block it, saying it could raise prices<figure><img src="https://images.theconversation.com/files/578386/original/file-20240227-26-jz6nu4.jpg?ixlib=rb-1.1.0&rect=970%2C550%2C2646%2C1491&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shoppers select items at a large Kroger supermarket in Atlanta in 2022.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/shoppers-are-seen-in-a-kroger-supermarket-on-october-14-in-news-photo/1244106504?adppopup=true">Elijah Nouvelage/AFP via Getty Images</a></span></figcaption></figure><p><em>The Federal Trade Commission announced on on Feb. 26, 2024, that it’s suing to prevent <a href="https://www.ftc.gov/news-events/news/press-releases/2024/02/ftc-challenges-krogers-acquisition-albertsons">Kroger’s attempt to acquire Albertsons</a>. The US$25 billion deal, first announced in 2022, would combine Cincinnati-based Kroger, already the <a href="https://www.foodindustry.com/articles/top-10-grocers-in-the-united-states-2019/#gsc.tab=0">largest traditional U.S. supermarket chain</a>, with Boise, Idaho-based Albertsons, which is currently the fourth-biggest. The Conversation asked <a href="https://scholar.google.com/citations?user=wI3ku0oAAAAJ&hl=en&oi=ao">Christine P. Bartholomew</a>, a professor at the University at Buffalo School of Law who researches consumer protection, to explain what’s at stake and why the government opposes this merger.</em></p>
<h2>Which supermarkets belong to the two companies?</h2>
<p>The proposed merger involves more than <a href="https://thehill.com/business/4489557-ftc-state-ags-sue-to-block-kroger-albertsons-merger/">5,000 stores in 48 states</a>. Millions of their customers, whose shopping routines could be affected if the deal goes through, may not recognize these brand names because they shop at supermarket chains large and small that the companies have acquired in recent decades through previous mergers. </p>
<p><a href="https://www.thekrogerco.com/about-kroger/history/">Kroger has 28 subsidiaries with nearly 2,800 supermarkets</a>, including Harris Teeter, Dillon’s, Smith’s, King Soopers, Fry’s, City Market, Owen’s, JayC, Pay Less, Baker’s Gerbes, Pick‘n Save, Metro Market, Mariano’s Fresh Market, QFC, Ralphs and Fred Meyer.</p>
<p><a href="https://www.albertsonscompanies.com/about-aci/overview/default.aspx">Albertsons owns and operates more than 2,200 supermarkets</a> through its many brands. They include Safeway, Vons, Jewel-Osco, Shaw’s, Acme, Tom Thumb, Randalls, United Supermarkets, Pavilions, Star Market, Haggen, Carrs, Kings Food Market and Balducci’s. </p>
<h2>Why does Kroger want to acquire Albertsons?</h2>
<p>The <a href="https://www.nbcchicago.com/news/business/us-sues-to-halt-merger-of-kroger-and-albertsons-parent-companies-of-marianos-and-jewel-osco/3366312/">companies argue that they need to join forces</a> to compete against even bigger online and big box retailers. Over the last two years, Walmart and Costco have <a href="https://www.grocerydive.com/news/kroger-albertsons-merger-2023-pardon-the-disruption/696308/">gained market share</a> while other chains have held steady or lost ground. Discount and alternative format stores, like Aldi and Costco, are also placing competitive pressure on these stores, along with stiff competition from dollar stores, one of the <a href="https://www.npr.org/2022/10/14/1129014897/kroger-and-albertsons-plan-merger-to-combine-2-largest-supermarket-chains">fastest-growing segments of U.S. retail</a>.</p>
<p>If the merger goes through over the federal government’s opposition, the new company would cement its position, ensuring it has the largest market share for grocery purchases after Walmart.</p>
<p>By getting even bigger, Kroger and Albertsons contend, these already huge supermarket chains <a href="https://abcnews.go.com/US/wireStory/us-government-kroger-albertsons-merger-bad-grocery-shoppers-107593123">would gain more bargaining power</a>, enabling them to charge lower prices, earn higher profits and spur more innovation. While that might sound like a good thing, they have provided few details on how these gains would be realized.</p>
<h2>What could go wrong?</h2>
<p>The government is getting involved out of concern that this merger could deny many shoppers the benefits of competition.</p>
<p>If the deal goes through, Walmart plus the combined Kroger and Albertsons company would <a href="https://ilsr.org/statement-kroger-albertsons-merger/">control 70% of the grocery market</a> in more than 160 cities. Its dominance could empower the enlarged company to drive up prices at a time when <a href="https://www.washingtonpost.com/business/2024/02/02/grocery-price-inflation-biden/">consumers are already feeling the pinch</a>.</p>
<p>History has taught me and other scholars who study grocery store mergers to be <a href="https://www.promarket.org/2023/11/22/why-the-kroger-albertsons-merger-is-a-mess-for-consumers/">skeptical</a> about claims that adding more stores into ever-larger companies will lower prices and enhance competition.</p>
<p>When the <a href="https://www.ftc.gov/sites/default/files/documents/reports/do-retail-mergers-affect-competition%C2%A0-evidence-grocery-retailing/wp313.pdf">FTC assessed the impact of 14 mergers in the supermarket industry</a>, it found that though companies in virtually every merger promised lower prices, those promises only came true in less than half the deals. </p>
<p>The proposed merger could possibly harm workers too, the government contends. The FTC warns that the <a href="https://www.ftc.gov/news-events/news/press-releases/2024/02/ftc-challenges-krogers-acquisition-albertsons">merger could restrain wages, reduce benefits and weaken worker protections</a> for the 720,000 employees working for supermarkets owned by the two companies. </p>
<p><a href="https://www.axios.com/2024/02/27/price-food-us-inflation-data-groceries">Grocery expenses gobble up almost 11.3%</a> of consumers’ disposable income. Even small price increases for eggs, milk and other groceries that most Americans regularly purchase can strain household budgets.</p>
<p>The FTC’s warning echoes the sentiment of many members of the United Food and Commercial Workers International Union, which has <a href="https://www.reuters.com/markets/deals/unions-praise-ftc-lawsuit-blocking-kroger-albertsons-merger-2024-02-26/">opposed the deal</a> since it was announced.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/578381/original/file-20240227-16-8iokvr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A group of people protest while holding red and white anti-merger pro-labor signs aloft." src="https://images.theconversation.com/files/578381/original/file-20240227-16-8iokvr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/578381/original/file-20240227-16-8iokvr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=377&fit=crop&dpr=1 600w, https://images.theconversation.com/files/578381/original/file-20240227-16-8iokvr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=377&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/578381/original/file-20240227-16-8iokvr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=377&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/578381/original/file-20240227-16-8iokvr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=473&fit=crop&dpr=1 754w, https://images.theconversation.com/files/578381/original/file-20240227-16-8iokvr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=473&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/578381/original/file-20240227-16-8iokvr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=473&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Unionized grocery store workers rally to oppose the proposed Kroger-Albertsons merger outside a Ralph’s supermarket in Los Angeles on April 13, 2023.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/unionized-grocery-store-workers-rally-to-oppose-the-news-photo/1251799980?adppopup=true">Frederic J. Brown/AFP via Getty Images</a></span>
</figcaption>
</figure>
<h2>How will the courts decide?</h2>
<p>The central question in the case will be whether the proposed merger violates the <a href="https://www.law.cornell.edu/uscode/text/15/18">Clayton Act</a>. This <a href="https://www.investopedia.com/terms/c/clayton-antitrust-act.asp">1914 law bars mergers</a> that “may be substantially to lessen competition, or to tend to create a monopoly.”</p>
<p>Proof that mergers would result in higher prices isn’t necessary. Rather, there need only be an appreciable danger that the level of competition will decline. <a href="https://nz.finance.yahoo.com/news/us-ftc-announce-suing-block-164053955.html">The initial proceeding is administrative</a>, meaning it would be heard by an in-house administrative judge.</p>
<p>This judge will consider the impact of the merger on competition among supermarket chains, looking at variables such as whether it would increase market concentration and prices while undermining quality and innovation. </p>
<p>If the FTC and state attorneys general succeed in making that case, then Kroger and Albertsons have two choices.</p>
<p>They could argue that any such harm is offset by aspects of the merger that might boost competition in other ways and prove their claims that the merger would <a href="https://www.albertsonscompanies.com/newsroom/press-releases/news-details/2022/Kroger-and-Albertsons-Companies-Announce-Definitive-Merger-Agreement/default.aspx">lower prices for shoppers</a>.</p>
<p>Alternatively, the companies can try to refute any evidence from the FTC supporting its claims that the merger would restrict competition among supermarket companies.</p>
<p>To make their case, Kroger-Albertsons would likely point to its <a href="https://ir.kroger.com/news/news-details/2023/Kroger-and-Albertsons-Companies-Announce-Comprehensive-Divestiture-Plan-with-CS-Wholesale-Grocers-LLC-in-Connection-with-Proposed-Merger/default.aspx">plan to sell off 413 of the supermarkets they currently own</a> across the United States to C&S Wholesale Grocers. The plan, announced in 2023, also calls for the sale of some distribution centers, private labels and other assets to help competition in places like California, Washington and Oregon.</p>
<p>These steps raise key questions that are hard and complicated to answer. For example, which markets could be harmed by a merger? Would the proposed plan to sell off some assets protect consumers who shop in those areas? </p>
<p>The administrative judge will also need to assess the potential impact on workers. </p>
<p>Afterward, the case could go to a U.S. District Court for further review, meaning that resolving this dispute could take several more years.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/578380/original/file-20240227-22-ko67ie.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Man in suit and tie stands at a podium in front of a map with photos of supermarkets on it." src="https://images.theconversation.com/files/578380/original/file-20240227-22-ko67ie.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/578380/original/file-20240227-22-ko67ie.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/578380/original/file-20240227-22-ko67ie.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/578380/original/file-20240227-22-ko67ie.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/578380/original/file-20240227-22-ko67ie.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/578380/original/file-20240227-22-ko67ie.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/578380/original/file-20240227-22-ko67ie.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Colorado Attorney General Phil Weiser announces the filing of a lawsuit to block the merger on Feb. 14, 2024.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/Grocery%20Store%20Merger%20Lawsuit/d1058b41b38140f4bf4d02a088125fca?Query=kroger%27s&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2047&currentItemNo=4">AP Photo/David Zalubowski</a></span>
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</figure>
<h2>What other litigation is going on?</h2>
<p>The <a href="https://www.cbsnews.com/news/kroger-albertsons-ftc-sues-to-block-merger/">state attorneys general</a> representing consumers in eight states – Arizona, California, Illinois, Maryland, Nevada, New Mexico, Oregon and Wyoming – joined this federal lawsuit. So has the District of Columbia’s attorney general.</p>
<p>And the <a href="https://www.npr.org/2024/01/15/1224401179/kroger-albertsons-merger-grocery-lawsuit-washington">Washington</a> and <a href="https://coag.gov/2024/colorado-attorney-general-phil-weiser-files-lawsuit-to-block-proposed-kroger-albertsons-merger/">Colorado</a> attorneys general have also each filed suit in their own states to block the merger. Those cases are pending in state courts, and both will need to be litigated regardless of what happens with the FTC’s action.</p>
<p>The <a href="https://coag.gov/app/uploads/2024/02/2024-02-14-Complaint-Public.pdf">Colorado complaint may add additional antitrust</a> concerns for the Kroger and Albertsons deal because it includes allegations that the companies have colluded to suppress workers’ benefits and wages. If proved, such conduct violates antitrust laws.</p>
<p>Even if the FTC is not successful, the enlarged supermarket company could face lingering antitrust scrutiny because it would still have to address Washington’s and Colorado’s merger challenges. And even if those challenges fail, the companies will have to respond to the Colorado attorney general’s allegations of collusion.</p>
<p><em>This article has been updated to correct a statement about market share for grocery stores in more than 160 cities. That figure includes Walmart, as well as the proposed Kroger-Albertsons company.</em></p><img src="https://counter.theconversation.com/content/224471/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Christine P. Bartholomew does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Turning two big supermarket companies into one even larger one could harm consumers and workers, the government says.Christine P. Bartholomew, Professor of Law, University at BuffaloLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2233102024-02-15T19:03:47Z2024-02-15T19:03:47ZWhy prices are so high – 8 ways retail pricing algorithms gouge consumers<figure><img src="https://images.theconversation.com/files/575804/original/file-20240215-28-d833it.jpeg?ixlib=rb-1.1.0&rect=114%2C175%2C1776%2C1011&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The just-released report of the inquiry into <a href="https://pricegouginginquiry.actu.org.au/">price gouging and unfair pricing</a> conducted by Allan Fels for the Australian Council of Trades Unions does more than identify the likely offenders.</p>
<p>It finds the biggest are supermarkets, banks, airlines and electricity companies.</p>
<p>It’s not enough to know their tricks. Fels wants to give the Australian Competition and Consumer Commission more power to investigate and more power to prohibit mergers.</p>
<p>But it helps to know how they try to trick us, and how technology has enabled them to get better at it. After reading the report, I’ve identified eight key maneuvers.</p>
<h2>1. Asymmetric price movements</h2>
<p>Otherwise known as <a href="https://www.jstor.org/stable/25593733">Rocket and Feather</a>, this is where businesses push up prices quickly when costs rise, but cut them slowly or late after costs fall.</p>
<p>It seems to happen for <a href="https://www.sciencedirect.com/science/article/abs/pii/S0140988323002074">petrol</a> and <a href="https://www.sciencedirect.com/science/article/abs/pii/S105905601730240X">mortgage rates</a>, and the Fels inquiry was presented with evidence suggesting it happens in supermarkets. </p>
<p>Brendan O’Keeffe from NSW Farmers told the inquiry wholesale lamb prices had been falling for six months before six Woolworths announced a cut in the prices of lamb it was selling as a “<a href="https://pricegouginginquiry.actu.org.au/wp-content/uploads/2024/02/InquiryIntoPriceGouging_Report_web.pdf">Christmas gift</a>”. </p>
<h2>2. Punishment for loyal customers</h2>
<p>A <a href="https://theconversation.com/simple-fixes-could-help-save-australian-consumers-from-up-to-3-6-billion-in-loyalty-taxes-119978">loyalty tax</a> is what happens when a business imposes higher charges on customers who have been with it for a long time, on the assumption that they won’t move.</p>
<p>The Australian Securities and Investments Commission has alleged a big <a href="https://theconversation.com/how-qantas-might-have-done-all-australians-a-favour-by-making-refunds-so-hard-to-get-213346">insurer</a> does it, setting premiums not only on the basis of risk, but also on the basis of what a computer model tells them about the likelihood of each customer tolerating a price hike. The insurer disputes the claim.</p>
<p>It’s often done by offering discounts or new products to new customers and leaving existing customers on old or discontinued products.</p>
<p>It happens a lot in the <a href="https://www.finder.com.au/utilities-loyalty-costing-australians-billions-2024">electricity industry</a>. The plans look good at first, and then less good as providers bank on customers not making the effort to shop around. </p>
<p>Loyalty taxes appear to be less common among mobile phone providers. Australian laws make it easy to switch <a href="https://www.reviews.org/au/mobile/how-to-switch-mobile-carriers-and-keep-your-number/">and keep your number</a>.</p>
<h2>3. Loyalty schemes that provide little value</h2>
<p>Fels says loyalty schemes can be a “low-cost means of retaining and exploiting consumers by providing them with low-value rewards of dubious benefit”. </p>
<p>Their purpose is to lock in (or at least bias) customers to choices already made. </p>
<p>Examples include airline frequent flyer points, cafe cards that give you your tenth coffee free, and supermarket points programs. The purpose is to lock in (or at least bias) consumers to products already chosen. </p>
<p>The <a href="https://www.accc.gov.au/consumers/advertising-and-promotions/customer-loyalty-schemes">Australian Competition and Consumer Commission</a> has found many require users to spend a lot of money or time to earn enough points for a reward. </p>
<p>Others allow points to expire or rules to change without notice or offer rewards that are not worth the effort to redeem.</p>
<p>They also enable businesses to collect data on spending habits, preferences, locations, and personal information that can be used to construct customer profiles that allow them to target advertising and offers and high prices to some customers and not others.</p>
<h2>4. Drip pricing that hides true costs</h2>
<p>The Competition and Consumer Commission describes <a href="https://pricegouginginquiry.actu.org.au/wp-content/uploads/2024/02/InquiryIntoPriceGouging_Report_web.pdf">drip pricing</a> as “when a price is advertised at the beginning of an online purchase, but then extra fees and charges (such as booking and service fees) are gradually added during the purchase process”. </p>
<p>The extras can add up quickly and make final bills much higher than expected. </p>
<p>Airlines are among the best-known users of the strategy. They often offer initially attractive base fares, but then add charges for baggage, seat selection, in-flight meals and other extras.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/junk-fees-and-drip-pricing-underhanded-tactics-we-hate-yet-still-fall-for-211117">Junk fees and drip pricing: underhanded tactics we hate yet still fall for</a>
</strong>
</em>
</p>
<hr>
<h2>5. Confusion pricing</h2>
<p>Related to drip pricing is <a href="https://www.x-mol.net/paper/article/1402386414932836352">confusion pricing</a> where a provider offers a range of plans, discounts and fees so complex they are overwhelming.</p>
<p>Financial products like insurance have convoluted fee structures, as do electricity providers. Supermarkets do it by bombarding shoppers with “specials” and “sales”. </p>
<p>When prices change frequently and without notice, it adds to the confusion. </p>
<h2>6. Algorithmic pricing</h2>
<p><a href="https://pricegouginginquiry.actu.org.au/wp-content/uploads/2024/02/InquiryIntoPriceGouging_Report_web.pdf">Algorithmic pricing</a> is the practice of using algorithms to set prices automatically taking into account competitor responses, which is something akin to computers talking to each other.</p>
<p>When computers get together in this way they can <a href="https://www.x-mol.net/paper/article/1402386414932836352">act as it they are colluding</a> even if the humans involved in running the businesses never talk to each other.</p>
<p>It can act even more this way when multiple competitors use the same third-party pricing algorithm, effectively allowing a single company to influence prices.</p>
<h2>7. Price discrimination</h2>
<p>Price discrimination involves charging different customers different prices
for the same product, setting each price in accordance with how much each customer is prepared to pay.</p>
<p>Banks do it when they offer better rates to customers likely to leave them, electricity companies do it when they offer better prices for business customers than households, and medical specialists do it when they offer vastly different prices for the same service to consumers with different incomes.</p>
<p>It is made easier by digital technology and data collection. While it can make prices lower for some customers, it can make prices much more expensive to customers in a hurry or in urgent need of something.</p>
<h2>8. Excuse-flation</h2>
<p><a href="https://www.bloomberg.com/news/articles/2023-03-09/how-excuseflation-is-keeping-prices-and-corporate-profits-high">Excuse-flation</a> is where general inflation provides “cover” for businesses to raise prices without
justification, blaming nothing other than general inflation.</p>
<p>It means that in times of general high inflation businesses can increase their prices even if their costs haven’t increased by as much.</p>
<p>On Thursday Reserve Bank Governor <a href="https://www.afr.com/policy/economy/inflation-is-cover-for-pricing-gouging-rba-boss-says-20240215-p5f58d">Michele Bullock</a> seemed to confirm that she though some firms were doing this saying that when inflation had been brought back to the Bank’s target, it would be </p>
<blockquote>
<p>much more difficult, I think, for firms to use high inflation as cover for this sort of putting up their prices</p>
</blockquote>
<h2>A political solution is needed</h2>
<p>Ultimately, our own vigilance won’t be enough. We will need political help. The government’s recently announced <a href="https://treasury.gov.au/review/competition-review-2023">competition review</a> might be a step in this direction.</p>
<p>The legislative changes should police business practices and prioritise fairness. Only then can we create a marketplace where ethics and competition align, ensuring both business prosperity and consumer wellbeing. </p>
<p>This isn’t just about economics, it’s about building a fairer, more sustainable Australia.</p><img src="https://counter.theconversation.com/content/223310/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Tuffley is affiliated with the Australian Computer Society (Member).</span></em></p>Each of these tricks is old, but each has been supercharged by the use of information technology.David Tuffley, Senior Lecturer in Applied Ethics & CyberSecurity, Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2121162023-08-29T20:12:58Z2023-08-29T20:12:58ZFlying under the radar: Australia’s silent and growing competition crisis<figure><img src="https://images.theconversation.com/files/545227/original/file-20230829-19-1azvqg.png?ixlib=rb-1.1.0&rect=742%2C167%2C2952%2C1628&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Australia has long had far less competition in consumer markets than the US.</p>
<p>New research from the <a href="https://e61.in/">e61 Institute</a> finds that in all but one of 17 broad industry divisions identified by the Australian Bureau of Statistics, Australian industries are on average more concentrated than their counterparts in the United States.</p>
<p>The measure used is “CR4” – the market share of the top four firms. </p>
<p>In 2017, the most recent year for which we could obtain comparable figures, Australia was far more prone to high levels of market concentration, with the top four firms accounting for 80% of some markets and averaging more than 60% across some industry categories.</p>
<hr>
<p><strong>Average concentration across industry groups, Australia versus United States</strong></p>
<p><em>Market share of the top four firms, per cent</em></p>
<hr>
<p>Importantly, we find market concentration in Australia increasing over time.</p>
<p>Between 2006 and 2020 Australia’s average CR4 measure of concentration increased 3 percentage points, with notable increases in industries that initially had a moderate level of concentration, such as retail and transport.</p>
<h2>Concentrated industries don’t welcome new entrants</h2>
<p>To be sure, concentrated does not always mean that competition is lacking, especially if there is credible threat of being displaced by dynamic upstarts. </p>
<p>But we found that in highly concentrated industries the four largest firms rarely got dislodged from their top positions over the 14 years between 2007 and 2021.</p>
<p>And those industries that experienced a rise in concentration over the seven years to 2014 recorded a decline in new firm entry over the following seven years.</p>
<p>This might mean we have as many as 6,300 fewer employing firms than we would have, giving Australian workers fewer employment options and suppressing real wage growth. And given that young firms are more innovative, it might mean lower productivity growth. </p>
<h2>Concentrated industries break rules more often</h2>
<p>Ranking Australian industries by their average concentration, we found the most concentrated had the most infringement notices and enforceable undertakings issued by the Australian Competition and Consumer Commission.</p>
<p>The airline industry, which is famously concentrated, has been hit with 12 such notices and enforceable undertakings over the past 30 years compared to only four for the accommodation industry.</p>
<hr>
<p><strong>ACCC infringement notices and undertakings versus industry concentration</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=475&fit=crop&dpr=1 600w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=475&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=475&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=597&fit=crop&dpr=1 754w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=597&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=597&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Infringement notices and enforceable undertakings per 1,000 firms 1993-2023. Industry concentration is defined as the average sales concentration of the top 10 firms over 2007-2021.</span>
<span class="attribution"><a class="source" href="https://e61.in/">ABC, ACCC, e61</a></span>
</figcaption>
</figure>
<hr>
<h2>Concentration means higher prices</h2>
<p>To explore the impact of market concentration on prices, we examined margins between retail and wholesale petrol prices in Brisbane and the Gold Coast and their relationship to the number of competing petrol stations within three kilometres.</p>
<p>We found that where petrol stations faced less competition they tended to charge higher margins, and that when wholesale prices rose, they appeared to be quicker in passing on this cost to consumers to maintain margins.</p>
<hr>
<p><strong>Competitors within 3 kilometres versus average petrol margins</strong></p>
<hr>
<h2>Concentration is happening more quietly</h2>
<p>Whereas in the US large mergers have to be reported to regulators, in Australia mergers are more like marriages.</p>
<p>Just as you don’t have to tell your family you are getting married, you don’t have to notify the Australian Competition and Consumer Commission you are about to merge with a competitor.</p>
<p>Companies are <a href="https://www.accc.gov.au/system/files/Merger%20guidelines%20-%20Final.PDF">encouraged</a> to notify the ACCC if the merged parties make either substitutes or complements <em>and</em> the merged firm will have a market share of more than 20%, but that is a <em>guideline</em> rather than a requirement, and the guidance was <a href="https://www.unswlawjournal.unsw.edu.au/wp-content/uploads/2017/09/32-1-4.pdf">relaxed</a> in 2008.</p>
<p>If you are high-profile enough to be listed on the Australian Securities Exchange, the ACCC is going to find out anyway through the media (ASX companies have to disclose significant acquisitions), so in practice most companies planning large mergers ask for the ACCC’s blessing ahead of time to avoid embarrassment.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/are-mergers-harming-consumers-we-wont-know-if-we-dont-check-115378">Are mergers harming consumers? We won't know if we don't check</a>
</strong>
</em>
</p>
<hr>
<p>That means while voluntary notification works well enough for bringing royal-wedding-style mergers to the ACCC’s attention, Vegas-style elopements can go undetected.</p>
<p>Although these small transactions can seem innocuous, their collective impact can be significant. In the US, it is estimated transactions too small to be reported account for <a href="https://www.nber.org/system/files/working_papers/w29655/w29655.pdf">28–47%</a> of the increase in concentration between 2022 and 2016. </p>
<p>In Australia, there is a risk that many of these transactions are going undetected.</p>
<p>e61 has found the number of private mergers (not reported to public financial markets) reviewed by the ACCC has <a href="https://e61.in/">plummeted</a> since the ACCC relaxed the reporting guidelines, from 55 in 2006 to just 12 in 2022</p>
<hr>
<p><strong>Number of private mergers reviewed by the ACCC per year</strong></p>
<hr>
<p>The head of the Competition and Consumer Commission Gina Cass-Gottlieb told the National Press Club this year she wanted Australia to move away from voluntary notifications to <a href="https://www.accc.gov.au/about-us/media/speeches/the-role-of-the-accc-and-competition-in-a-transitioning-economy-address-to-the-national-press-club-2023">formal clearances</a> of the kind required overseas where there was</p>
<ul>
<li><p>a mandatory requirement to notify the ACCC of mergers above specified thresholds </p></li>
<li><p>a requirement for transactions to be suspended from completion prior to ACCC clearance</p></li>
</ul>
<p>Parties proposing a non-contentious merger could apply for a notification waiver that, if granted, would mean they wouldn’t need to make a full formal application and the proposal could be dealt with quickly.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cartels-caught-ripping-off-consumers-should-be-hit-with-bigger-fines-78750">Cartels caught ripping off consumers should be hit with bigger fines</a>
</strong>
</em>
</p>
<hr>
<p>Cass-Gottlieb said businesses were increasingly pushing the boundaries of the informal system, giving the ACCC late, incomplete, or incorrect information, and threatening to complete their transactions before it completed its reviews.</p>
<p>At times overseas authorities knew about proposed transactions involving Australian companies before the Australian authorities.</p>
<p>Our research finds that not only are Australian industries concentrated and becoming more so, but mergers might be increasingly flying under the radar.</p>
<p>The government has announced a review of competition policy that will include a <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/more-dynamic-and-competitive-economy">review of merger laws</a> as well as <a href="https://theconversation.com/1-in-5-australian-workers-have-non-compete-clauses-new-survey-207987">non-compete clauses</a>. Our research suggests there’s a strong economic case for taking action on both fronts.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/1-in-5-australian-workers-have-non-compete-clauses-new-survey-207987">1 in 5 Australian workers have non-compete clauses: new survey</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/212116/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dan Andrews is affiliated with the e61 Institute. </span></em></p><p class="fine-print"><em><span>Elyse Dwyer is affiliated with the e61 Institute</span></em></p>New research finds Australian industries are becoming concentrated with greater power to charge high prices. Unlike US firms, Australian firms are not required to report merger plans to authorities.Dan Andrews, Visiting Fellow and Director – Micro heterogeneity and Macroeconomic Performance program, Crawford School of Public Policy, Australian National UniversityElyse Dwyer, Researcher, Department of Economics, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2040352023-05-21T20:00:05Z2023-05-21T20:00:05ZSumner Redstone: the other media baron who inspired Succession was more toxic and dysfunctional than Logan Roy<figure><img src="https://images.theconversation.com/files/526103/original/file-20230515-18-7g22tf.jpg?ixlib=rb-1.1.0&rect=17%2C0%2C1920%2C1270&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">HBO</span></span></figcaption></figure><p>Just before the third season of the hit HBO television show <a href="https://theconversation.com/how-succession-feeds-the-hidden-fantasies-of-its-well-to-do-viewers-201936">Succession</a> began, the show’s creator, Jesse Armstrong, was asked (again) what it was about real-life media tycoons Sumner Redstone and Rupert Murdoch that drove him to create a TV series about a fictional media family that bore some resemblances to each of them.</p>
<p>Armstrong’s answer was simple: when Redstone and Murdoch had been asked about their succession plans, both had joked they didn’t plan to die.</p>
<hr>
<p><em>Review: Unscripted: The Epic Battle for a Hollywood Media Empire – James B. Stewart and Rachel Abrams (Cornerstone Press)</em></p>
<hr>
<p>“It felt like something quite basic about not wanting to give up and feeling that loss of influence at the end of your life,” Armstrong <a href="https://english.ahram.org.eg/News/435246.aspx">explained</a>. “And I started to feel there was a show about what those people are like in general.”</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526220/original/file-20230515-8760-ma8fg8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/526220/original/file-20230515-8760-ma8fg8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526220/original/file-20230515-8760-ma8fg8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526220/original/file-20230515-8760-ma8fg8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526220/original/file-20230515-8760-ma8fg8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526220/original/file-20230515-8760-ma8fg8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526220/original/file-20230515-8760-ma8fg8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526220/original/file-20230515-8760-ma8fg8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Jesse Armstrong (second right) was inspired to write Succession by Sumner Redstone and Rupert Murdoch, who both joked they intended not to die.</span>
<span class="attribution"><span class="source">Chris Pizello/AP</span></span>
</figcaption>
</figure>
<p>Armstrong’s success has been to combine the all-too-common anxiety about our legacy with the elevated stakes that come with being one of those rarefied ultra-wealthy corporate media figures who believe mortality is negotiable.</p>
<p>It appears that for these media tycoons’ families, an inheritance goes beyond how much it’s worth, or what corporate outpost might come their way: it’s also about the family dynamic. Sibling rivalry, parental respect – and often, the banality of favouritism. Emotional fealty can have dollar signs attached to it. </p>
<p>We understand this almost instinctively in Armstrong’s depiction of the Roy family and the gruesome fascination patriarch Logan Roy conjures from a combination of psychopathic paternalism and deal-making wizardry. </p>
<p>But now we can also see it in even more lurid detail, with the release of a book by two New York Times journalists on Redstone’s savage battle to secure his own legacy: <a href="https://www.penguin.com.au/books/unscripted-9781529912852">Unscripted: The Epic Battle for a Hollywood Media Empire</a> by James B. Stewart and Rachel Abrams.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"695000477734285312"}"></div></p>
<h2>An American success story</h2>
<p>Redstone was one of those classic American success stories. His father sold linoleum, and went on to run two drive-in theatres, which Redstone would later develop into the movie theatre chain National Amusements. (And as a child, <a href="https://www.theringer.com/tv/2019/9/29/20886840/succession-season-2-episode-8-recap">just like Logan Roy</a>, Redstone briefly lived in a house with no inside bathroom.)</p>
<p>Redstone escaped his background with a scholarship to Harvard that set him on the path to a career that, at its peak, delivered him control of Viacom, Paramount Pictures, CBS, MTV, Comedy Central, Nickelodeon and publisher Simon & Schuster, as well as National Amusements. It was a playpen of great wealth and wide influence.</p>
<p>Unscripted makes clear that Redstone’s travails are even more compelling and incredible than his small-screen avatar’s. The reality is more toxic, more dysfunctional and far more complicated than any TV script. </p>
<p>Unscripted catalogues Redstone’s sexual predations – including finding on-air roles for women he was interested in (another Logan move), and repeatedly dating or trying to date his grandson’s girlfriends. Said one Hollywood executive of his behaviour: “He acts like a 15-year-old kid at summer camp.”</p>
<p>His fed-up grandson eventually hired TV’s Millionaire Matchmaker, Patti Stanger (whom Sumner called his “dream girl” and unsuccessfully pursued), to find him a companion. This would have unforeseen consequences.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/526175/original/file-20230515-29-kumz6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/526175/original/file-20230515-29-kumz6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/526175/original/file-20230515-29-kumz6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=922&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526175/original/file-20230515-29-kumz6q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=922&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526175/original/file-20230515-29-kumz6q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=922&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526175/original/file-20230515-29-kumz6q.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1159&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526175/original/file-20230515-29-kumz6q.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1159&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526175/original/file-20230515-29-kumz6q.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1159&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>But what Unscripted really reveals is how desperately Redstone clung to the hallmarks of his successful life, and how vulnerable that made him to those who wanted to take advantage of him. </p>
<p>Central to the book, and his later life – as Armstrong noted – is Redstone’s gobsmacking denial of his own mortality.</p>
<p>At the age of 85, and having survived a hotel fire in his 50s, and later prostate cancer, <a href="https://www.vanityfair.com/hollywood/2023/02/sumner-redstone-in-love-the-cringey-sexcapades-of-a-horny-billionaire">Redstone boasted</a> to CNN’s celebrity interviewer Larry King that he had “the vital statistics of a 20-year-old”.</p>
<p>In case Larry had any doubts, Redstone laid out his case. “Even 20-year-old men get older. Not me. My doctor says I’m the only man who’s reversed it. I eat and drink every antioxidant known to man. I exercise 50 minutes every day.” Redstone even told one of his numerous paramours that he was the inspiration behind <a href="https://www.imdb.com/title/tt0421715/">The Curious Case of Benjamin Button</a>, a film about a man who defies chronology by getting younger.</p>
<p>Not long after the King interview, Redstone’s health started to deteriorate. And that, of course, brought his family’s inheritance and succession issues into sharp relief. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-rich-are-pouring-millions-into-life-extension-research-but-does-it-have-any-ethical-value-201774">The rich are pouring millions into life extension research – but does it have any ethical value?</a>
</strong>
</em>
</p>
<hr>
<h2>The successor: Shari Redstone</h2>
<p>Redstone had two children: a son, Brent, who was estranged from his father, and Shari, a lawyer, three years younger than her brother. The similarities of Shari (who, incidentally, has red-blonde hair) to Shiv Roy, played by Sarah Snook, have been noted.</p>
<p>Over the years, Shari had clashed bitterly with her father, sometimes publicly. At the same time she craved his affection and approval, which he dangled frequently before her (especially when he needed something) but then withdrew his favour. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1179841050623565826"}"></div></p>
<p>Shari was initially nominated as his successor, but after a public feud between them, Sumner announced his inheritance would instead be shared between his five grandchildren. </p>
<p>The book hums with the steady undercurrent of the cruel and fraught relationship between Sumner and Shari, reaching its crescendo as Sumner chose two of his lovers to become his live-in carers in a bizarre affront to his family. </p>
<p>One of them was Sydney Holland, introduced to Redstone by the Millionaire Matchmaker: she became his live-in fiancee. The other was his old flame, Manuela Herzer, who moved in (with her daughter) while the house Redstone had bought her was being renovated – and stayed, sharing Holland’s duties of managing the household and Redstone’s medical care. </p>
<p>Together, they not only found every way possible to prevent Shari from visiting him – but also <a href="https://www.hollywoodreporter.com/business/business-news/sumner-redstone-sues-companions-elder-abuse-reclaim-150m-gifts-937749/">extracted US$150 million</a> from him.</p>
<p>By that stage, Redstone was being fed through a tube into his stomach. He spent most of his day watching sport on TV, and could barely speak. The fate of his companies swung in the wind. Shari, who was still part of the corporate landscape, was trying to salvage something from the wreckage. </p>
<p>She never gave up, although she came close to walking away. All she wanted was a signal from her father that – after years of being patronised, yelled at, ignored and belittled – he trusted her. </p>
<p>After she managed to extract the two carers from the Redstone home (no easy feat), Shari “all but moved to Los Angeles” to be near her father. His nurses installed a large clock so he could track the hours and minutes until her arrival, and she “became adept at interpreting Sumner’s speech”.</p>
<p>There is an echo here too of Succession: Logan Roy’s business rival, Sandy, whose daughter Sandi – also apparently inspired by Shari – is his translator to the world, after he falls seriously ill (with what’s <a href="https://screenrant.com/succession-season-3-sandy-illness-syphilis-what-happened/">rumoured</a> to be syphilis, seemingly a dig at his hypersexuality).</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526105/original/file-20230515-17-ummfq5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/526105/original/file-20230515-17-ummfq5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526105/original/file-20230515-17-ummfq5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526105/original/file-20230515-17-ummfq5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526105/original/file-20230515-17-ummfq5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526105/original/file-20230515-17-ummfq5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526105/original/file-20230515-17-ummfq5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526105/original/file-20230515-17-ummfq5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Succession’s Sandi (Hope Davis) is also inspired by Shari Redstone.</span>
<span class="attribution"><span class="source">HBO</span></span>
</figcaption>
</figure>
<p>Sumner and Shari’s conversation turned to the proposal to sell a stake in Paramount to a Chinese property conglomerate. Sumner was viscerally opposed to the idea, hatched by a longtime executive whom Sumner now determined was on the outer. </p>
<blockquote>
<p>“What do I do?” Redstone asked his daughter. </p>
<p>“This is your battle, not mine […] I have a new life,” Shari replied. </p>
<p>Redstone pleaded: “Shari, you have to do this. You need to stop this.” </p>
<p>For Shari, that was the moment he finally said: “Shari, I trust you.” </p>
<p>“I’ll do it for you,” she said.</p>
</blockquote>
<p>Shari’s determination to follow her father’s wishes helped make sure the deal never happened.</p>
<p>All this will resonate with those Succession fans who felt the whiplash of Logan Roy’s disdain towards his children, and its savage counterpoint as he tried to woo them. </p>
<p>Logan seems indomitable, but what makes the Redstone story so compelling is, eventually, the patriarch’s vulnerability – his confrontation with mortality – and the desperation and loneliness that drove him to restore his relationship with his daughter. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-first-biography-of-lachlan-murdoch-provides-some-insights-but-leaves-important-questions-unanswered-192403">The first biography of Lachlan Murdoch provides some insights, but leaves important questions unanswered</a>
</strong>
</em>
</p>
<hr>
<h2>Corporate misogyny</h2>
<p>There is no denying the other essential thread in Unscripted is one that clearly links Redstone’s appalling behaviour towards the women in his life with the corporate play that finally resolves his legacy.</p>
<p>The deal was to be a merger of the successful CBS network with the ailing Viacom, an idea Redstone had aggressively rejected for years. But the older Redstone became, the more appealing the merger became to the executives at CBS, particularly its chief executive, <a href="https://theconversation.com/how-les-moonves-got-to-leave-cbs-on-his-own-terms-while-others-in-metoo-miscreant-club-got-canned-103041">Les Moonves</a>.</p>
<p>As the heat around the deal increased, rumours started to circulate about Moonves. Several women <a href="https://www.newyorker.com/magazine/2018/08/06/les-moonves-and-cbs-face-allegations-of-sexual-misconduct">came forward</a> to accuse Moonves of sexual harassment and, in some instances, alleged sexual assault.</p>
<p>As Unscripted follows Moonves and the complex network of law firms and investigations that surrounded him, Sumner Redstone recedes from view. Shari, emboldened and central to the corporate action, becomes the character linking the two ends of the Redstone story. She had counted Moonves as a friend who had helped make CBS successful. Her father had championed him – but the CBS chief had let Shari down and betrayed her with his behaviour. He had to go.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526173/original/file-20230515-15-vs5j9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/526173/original/file-20230515-15-vs5j9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526173/original/file-20230515-15-vs5j9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526173/original/file-20230515-15-vs5j9k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526173/original/file-20230515-15-vs5j9k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526173/original/file-20230515-15-vs5j9k.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=505&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526173/original/file-20230515-15-vs5j9k.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=505&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526173/original/file-20230515-15-vs5j9k.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=505&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Sumner Redstone and Les Moonves with Ewan McGregor at movie premiere Salmon Fishing in the Yemen.</span>
<span class="attribution"><span class="source">Chris Pizello/AP</span></span>
</figcaption>
</figure>
<p>Recurring and relentless misogyny characterises the corporate, entertainment and media worlds. We see this in Redstone’s corporate kingdom – and in the fictional setting of Waystar Royco, the corporate behemoth in Succession. Truth marches alongside fiction, without a sideways glance.</p>
<p>The book is an assiduous piece of journalism from two Pulitzer Prize winners: Abrams was part of The New York Times reporting team that worked on the Weinstein stories, and her knowledge of that context gives Unscripted a sharp clarity. </p>
<p>But Abrams and Stewart also have some great material to work with: we eavesdrop on conversations, and read text messages and emails, that together amount to a picture of greed, arrogance and despair. Most of these details are on the public record because there has been so much litigation between various parties seeking to either protect Redstone’s legacy or snatch some of it for themselves.</p>
<p>It ended on August 11 2020, when Sumner Redstone died at the age of 97. The merger between CBS and Viacom went ahead and Shari attempted to reshape the culture with seven women on the 13-member board of the merged company.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-do-people-crave-the-approval-of-an-abusive-or-narcissistic-parent-and-what-can-they-do-about-it-203664">Why do people crave the approval of an abusive or narcissistic parent? And what can they do about it?</a>
</strong>
</em>
</p>
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<h2>Living+</h2>
<p>Redstone might have died, but Armstrong’s other inspiration – Rupert Murdoch – continues. Murdoch turned 92 in March and seems resolute, if less robust.</p>
<p>Just like Redstone, Murdoch had his moment to pronounce on his longevity. He was 69 and had triumphed over prostate cancer. </p>
<p>“I’m now convinced of my own immortality,” <a href="https://www.vanityfair.com/news/2023/04/rupert-murdoch-cover-story">he declared</a>, although it’s highly likely he was half-joking. Nonetheless, there is longevity in the family genes: Murdoch’s mother, Dame Elisabeth, died at 103.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526240/original/file-20230515-12594-kg1js8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/526240/original/file-20230515-12594-kg1js8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526240/original/file-20230515-12594-kg1js8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526240/original/file-20230515-12594-kg1js8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526240/original/file-20230515-12594-kg1js8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526240/original/file-20230515-12594-kg1js8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526240/original/file-20230515-12594-kg1js8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526240/original/file-20230515-12594-kg1js8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Rupert Murdoch joked, aged 69, ‘I’m now convinced of my own immortality’. That idea seems to have inspired Succession’s retirement product, Living+.</span>
<span class="attribution"><span class="source">HBO</span></span>
</figcaption>
</figure>
<p>After Redstone’s departure, Murdoch remains the oldest media tycoon still actively in charge. It’s clear he believes there’s still much work to be done, but <a href="https://theconversation.com/celebrity-money-and-power-tvs-obsession-with-the-murdoch-family-dynasty-146113">who will follow him</a> from among his four grown-up children remains a work in progress.</p>
<p>Whatever happens, it’s highly unlikely the public turmoil and angst that surrounded the Redstone succession will be repeated with Murdoch: it has so far felt like a much more discreet display.</p>
<p>If there’s any doubt about how the Murdochs want to keep all this private, it’s that one of the terms of the settlement of Murdoch’s divorce from his fourth wife, model Jerry Hall, was that she couldn’t give story ideas to the writers of Succession.</p>
<p>And yet in a recent episode from what is the final series, Kendall Roy launched a new retirement product from Waystar, <a href="https://www.vulture.com/article/succession-living-plus-inspiration-explained.html">Living+</a>, which he described in his unique corporate mangling as a “personalised longevity journey”.</p>
<p>What actually is that, Ken? Somewhere to go while you’re waiting, or just maybe some intimations of mortality? Most likely, it’s just a Jesse Armstrong joke.</p><img src="https://counter.theconversation.com/content/204035/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nick Richardson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new book, Unscripted, tells the incredible story of Sumner Redstone, the other model for Succession’s Logan Roy – and the epic succession journey of his daughter, Shari, now chair of ViacomCBS.Nick Richardson, Adjunct Professor of Journalism, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2011322023-04-03T16:26:04Z2023-04-03T16:26:04ZHere’s how the Rogers-Shaw merger could benefit Canadian customers<figure><img src="https://images.theconversation.com/files/518541/original/file-20230330-20-297ypl.JPG?ixlib=rb-1.1.0&rect=11%2C0%2C3679%2C2495&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Rogers' takeover of Shaw has been approved by the Canadian government, but the deal comes with stringent conditions.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span></figcaption></figure><p>The Canadian government has finally approved the <a href="https://www.cbc.ca/news/business/rogers-shaw-approval-1.6797175">$26 billion takeover of Shaw by Rogers</a> after nearly two years of delays. When the merger was <a href="https://www.globenewswire.com/news-release/2021/03/15/2192622/0/en/Rogers-and-Shaw-to-come-together-in-26-billion-transaction-creating-new-jobs-and-investment-in-Western-Canada-and-accelerating-Canada-s-5G-rollout.html">first announced by Rogers in 2021</a>, it stirred up a significant amount of competition concern. </p>
<p>The Canadian Competition Bureau <a href="https://www.canada.ca/en/competition-bureau/news/2023/01/statement-from-the-commissioner-of-competition-on-the-federal-court-of-appeals-decision-regarding-the-rogers-shaw-merger.html">was worried the merger would soften competition in the telecom industry</a>, resulting in higher prices and lower service quality for customers.</p>
<p>The bureau <a href="https://www.cbc.ca/news/business/competition-bureau-rogers-shaw-merger-1.6446827">filed a court application to block the deal in 2022</a>, but the <a href="https://www.cbc.ca/news/business/rogers-shaw-appeal-court-1.6724045">Federal Court of Appeal rejected the application</a> and the subsequent <a href="https://financialpost.com/telecom/rogers-shaw-merger-approval-appeal-court">appeal from the bureau</a>.</p>
<p>But Industry Minister François-Philippe Champagne appears to have heeded some of these concerns. <a href="https://www.canada.ca/en/innovation-science-economic-development/news/2023/03/statement-from-minister-champagne-concerning-competition-in-the-telecommunication-sector.html">In his statement on the merger</a>, the minister said the deal’s approval is contingent on a series of legally enforceable conditions for Rogers and Videotron, the company that Shaw is selling its Freedom Mobile wireless business to.</p>
<p>These conditions are to ensure this merger will, according to Champagne, “actually drive down prices across Canada.” With the advent of these conditions, this deal could end up benefiting Canadian consumers and the economy.</p>
<h2>Lowering service costs</h2>
<p><a href="https://www.ctvnews.ca/business/these-are-the-conditions-and-penalties-if-violated-of-the-rogers-shaw-deal-1.6337353">Two of the merger’s conditions</a> require Rogers to set up low-cost mobile plans for low-income Canadians, and expand its existing low-cost internet plans. Rogers has good reason to meet these conditions — if it violates any of them, it could be fined up to $1 billion.</p>
<p>Meeting these low-cost conditions shouldn’t be an issue for the merged company. According to Rogers, the <a href="https://about.rogers.com/news-ideas/rogers-and-shaw-to-come-together-in-26-billion-transaction-creating-new-jobs-and-investment-in-western-canada-and-accelerating-canadas-5g-rollout/">financial benefit of the merger will be around $1 billion annually</a>. </p>
<p>Rogers will also be able to lower service costs through integration. Since Canada is such a large country geographically, but <a href="https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2018005-eng.htm">relatively small population-wise</a>, it would be wasteful for Rogers to build their own infrastructure, instead of taking advantage of Shaw’s.</p>
<figure class="align-center ">
<img alt="A white middle-aged man gestures with his hands while speaking. Two Canadian flags stand behind him." src="https://images.theconversation.com/files/518801/original/file-20230331-26-xtdw0z.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/518801/original/file-20230331-26-xtdw0z.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=411&fit=crop&dpr=1 600w, https://images.theconversation.com/files/518801/original/file-20230331-26-xtdw0z.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=411&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/518801/original/file-20230331-26-xtdw0z.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=411&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/518801/original/file-20230331-26-xtdw0z.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=517&fit=crop&dpr=1 754w, https://images.theconversation.com/files/518801/original/file-20230331-26-xtdw0z.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=517&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/518801/original/file-20230331-26-xtdw0z.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=517&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Innovation, Science and Industry Minister François-Philippe Champagne speaks at a news conference about the Rogers-Shaw merger on Parliament Hill in Ottawa on March 31.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/ Patrick Doyle</span></span>
</figcaption>
</figure>
<p>Shaw has a fibre route in western Canada that is over 12,000 kilometres long — Rogers will be able to save money by using this pre-existing route to deliver its services, instead of building new networks.</p>
<h2>Increasing internet access</h2>
<p>This merger also has the potential to play a key role in Canada’s 5G infrastructure and increasing internet access for Canadians.</p>
<p>5G is the <a href="https://www.scientificamerican.com/video/what-is-5g-here-is-short-video-primer/">fifth generation of mobile network technology</a>. It’s more reliable, faster and can handle more data than 4G can. In other words, it’s the future of wireless networks — a future Canada should capitalize on.</p>
<p>The merger’s conditions require Rogers to expand broadband internet access and 5G services across the country. This will be especially important for households in suburban and <a href="https://nationalpost.com/feature/left-behind-internet-access-rural-canada">rural areas in Canada</a>, since it’s harder for them to access fibre and internet alternatives.</p>
<p>Given that 98.6 per cent of households in urban areas can access to broadband, but <a href="https://www.ckom.com/2023/01/08/indigenous-communities-across-canada-working-to-provide-internet-access-for-underserved/">only 45.6 per cent of rural households and 34.8 per cent of First Nations reserves</a> can, the merger could benefit rural markets substantially.</p>
<h2>Revitalizing the economy</h2>
<p>5G services are estimated to <a href="https://pm.gc.ca/en/news/news-releases/2022/10/17/strengthening-canadas-position-leader-5g-and-digital-innovation">contribute $40 billion annually</a> and <a href="https://www.5gcc.ca/wp-content/uploads/2018/06/CWTA-Accenture-Whitepaper-5G-Economic-Impact_Updates_WEB_06-19-2018.pdf">250,000 jobs to Canada by 2026</a>. Another one of the merger’s conditions is that Rogers create 3,000 jobs in Western Canada and maintain them for at least a decade.</p>
<p>These new jobs will be particularly important for Alberta, where Shaw’s home office is and where the company’s western headquarters will be located. The province has been <a href="https://calgary.ctvnews.ca/alberta-analysts-closely-watching-drastic-oil-slump-1.6316500">struggling with low oil prices</a> and <a href="https://www.iisd.org/publications/search-prosperity-oil-alberta-canada">declining oil demand</a> caused by a combination of market forces and international climate policies.</p>
<p>This merger could help Alberta diversify and sustain its economy <a href="https://theconversation.com/a-provincial-sales-tax-is-the-solution-to-albertas-fiscal-roller-coaster-191147">so it no longer needs to rely so heavily on the oil industry</a> for income. It could even help transition Calgary from an oil city to a technology hub.</p>
<p>It’s important to note, however, that this merger may still increase competition in the telecom industry in the short term, despite the federal government’s attempts to mitigate this with their stringent deal conditions. But in the long run, this deal could ultimately lead to increased innovation, which in turn, <a href="https://theconversation.com/why-your-company-needs-an-innovation-strategy-in-2023-197186">would benefit consumers as well</a>.</p><img src="https://counter.theconversation.com/content/201132/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Victor Song does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The new conditions that have been heaped onto Rogers as a result of the Rogers-Shaw merger could end up benefiting Canadian consumers and the economy at large.Victor Song, Assistant Professor, Beedie School of Business, Simon Fraser UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1971882023-03-12T12:42:56Z2023-03-12T12:42:56ZRogers-Shaw case unexpectedly rewrote merger law, but there’s still time to change that<figure><img src="https://images.theconversation.com/files/514049/original/file-20230307-2497-ocsgvb.JPG?ixlib=rb-1.1.0&rect=338%2C287%2C4073%2C2710&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Rogers-Shaw deal is the largest merger to be challenged before the Competition Tribunal. </span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span></figcaption></figure><p>Nearly two years after it was announced, the <a href="https://www.globenewswire.com/news-release/2021/03/15/2192622/0/en/Rogers-and-Shaw-to-come-together-in-26-billion-transaction-creating-new-jobs-and-investment-in-Western-Canada-and-accelerating-Canada-s-5G-rollout.html">$26-billion takeover</a> of Shaw Communications by Rogers Communications remains in the news — and in a state of limbo.</p>
<p>Rogers and Shaw have pushed the <a href="https://www.cbc.ca/news/business/rogers-shaw-deadline-extended-march-31-1.6751886">closing date of the deal</a> to March 31 as they wait for Canada’s Minister of Innovation François-Philippe Champagne to approve the transfer of wireless spectrum licences from Shaw to Quebecor’s Videotron subsidiary.</p>
<p>Champagne is in a <a href="https://www.bnnbloomberg.ca/rogers-shaw-takeover-expert-says-industry-minister-likely-mulling-optics-of-approval-1.1888729">delicate position</a>. Ever since the Competition Tribunal <a href="https://decisions.ct-tc.gc.ca/ct-tc/cdo/en/521175/1/document.do">rejected the Commissioner of Competition’s application to block the deal</a> on Jan. 24, 2023, opponents of the deal have urged Champagne to override the tribunal decision.</p>
<p>Regardless of what Champagne decides, the tribunal decision — endorsed by the Federal Court of Appeal — has created a new rule that raises significant questions about merger review going forward.</p>
<p>With a <a href="https://ised-isde.canada.ca/site/strategic-policy-sector/en/marketplace-framework-policy/competition-policy/consultation-future-competition-policy-canada">consultation on the future of competition policy in Canada</a> underway, it is vital to seize the opportunity to correct a problematic new precedent.</p>
<h2>Implications for merger law</h2>
<p>Most experts thought <a href="https://www.theglobeandmail.com/business/article-with-shaw-deal-competition-monitor-airs-views-on-corporate-vs-consumer/">the Rogers-Shaw case would focus on</a> the controversial efficiencies defence, which has been a <a href="https://www.theglobeandmail.com/business/article-the-takeover-law-that-has-bay-street-rattled-complicating-the-rogers/">primary target for reform</a>.</p>
<p>Unique to Canada, the efficiencies defence allows a merger to proceed if economic efficiencies, such as cutting staff and combining business units, are sufficient to compensate for the higher prices and less consumer choice caused by the merger.</p>
<p>In the end, there was no need to consider whether the efficiencies would compensate for any anti-competitive effects, since the tribunal dismissed the application. The tribunal was unconvinced the merger would negatively affect competition for wireless services in British Columbia and Alberta.</p>
<figure class="align-center ">
<img alt="A man in a suit gestures while speaking" src="https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=426&fit=crop&dpr=1 600w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=426&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=426&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=535&fit=crop&dpr=1 754w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=535&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=535&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Innovation, Science and Industry Minister François-Philippe Champagne rises during Question Period in the House of Commons on Parliament Hill in Ottawa in February 2023.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/ Patrick Doyle</span></span>
</figcaption>
</figure>
<p>On the surface, this looks like an open and shut case, but something unprecedented happened — the original deal <a href="https://decisions.ct-tc.gc.ca/ct-tc/cdo/en/item/520922/index.do">challenged by the commissioner in May 2022</a> — a one-step complete takeover of Shaw by Rogers — was replaced by a two-step process, announced in June and <a href="https://corpo.videotron.com/en/pressroom/rogers-shaw-and-quebecor-sign-definitive-agreement-sale-freedom-mobile">finalized in August</a>, in which Rogers would sell Freedom Mobile to Videotron before acquiring Shaw.</p>
<p>Based on its interpretation of the law and applying “common sense,” the tribunal decided the merger review must look at the deal the parties <em>actually intend to do</em>, even though the new deal is the result of a change made after the commissioner started litigation.</p>
<p>The commissioner asked the Federal Court of Appeal to overturn this part of the decision. <a href="https://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/521096/index.do">The Court refused</a>, saying it would not have changed the outcome of the case because the tribunal had rejected all of the commissioner’s evidence. </p>
<h2>Merger review process</h2>
<p>In Canada, mergers are not subject to formal approval. The purpose of the Competition Bureau’s review of mergers is to identify and resolve problems. </p>
<p>Our merger regime has two parts: <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/merger-review-process-guidelines#s3_4_3">notification</a> and <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/merger-enforcement-guidelines">enforcement</a>. Most merger review happens at the notification stage when <a href="https://www.canada.ca/en/competition-bureau/news/2023/02/pre-merger-notification-transaction-size-threshold-to-remain-at-93m-in-2023.html">the bureau reviews transactions by parties</a> to see if a deal raises competition concerns. </p>
<p>Most of the time, the bureau has none and takes no action. But when cases do raise concerns, the bureau may ask for more information to better understand the impacts of the merger. Usually merging parties have suggestions for how to remedy concerns ahead of time, and the commissioner and the parties can reach a resolution without needing litigation.</p>
<p>Very rarely, the gap between the commissioner and the parties cannot be bridged and the commissioner will challenge the merger. The commissioner can challenge any merger, including <a href="https://laws.justice.gc.ca/eng/acts/C-34/page-16.html#docCont">those completed within the last year</a> or those, like the <a href="https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/14603/index.do">Tervita case</a>, that don’t have to be notified. </p>
<p>The commissioner starts a challenge by applying to the Competition Tribunal for an order to fix the anti-competitive problems caused by the merger. The commissioner must prove the deal will likely cause a “substantial lessening or prevention of competition.” </p>
<p>Once he does that, he must show how his proposed remedy will bring the level of anti-competitive harm below the substantial level.</p>
<p>Parties that propose alternatives to the commissioner’s remedy must convince the tribunal their remedy is adequate and achievable. Sometimes the commissioner and the parties are able to agree on a remedy to settle a contested case. This can then be filed as a <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/competition-bureau-mergers-consent-agreement-template">consent agreement</a>, which is binding on both sides.</p>
<h2>Upending the merger review process</h2>
<p>The Rogers-Shaw decision upends the merger review process in two ways. First, allowing post-litigation changes removes the incentive for parties to work with the commissioner to resolve competition issues in the early stages of merger review. </p>
<p>For parties seeking a remedy the commissioner objects to, a late deal change is a way they can propose a remedy. Baking a remedy directly into a deal means the remedy isn’t looked at separately from the overall question of whether the deal is anti-competitive. </p>
<p>This means parties don’t have to show their remedy is likely to work — it’s assumed to. More importantly, since the remedy is not enshrined in a formal tribunal order, there is no legal mechanism to ensure the parties follow through.</p>
<p><a href="https://www.theglobeandmail.com/business/article-quebecor-working-with-federal-government-on-details-of-pledge-to/">Crafting effective alternatives to court orders</a> to ensure parties keep their promises is difficult, as we have seen in the continued delay in the final approval of the Rogers-Shaw deal by Champagne.</p>
<figure class="align-center ">
<img alt="Two men in suits stand before a table with name cards sitting on it" src="https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tony Staffieri, president and chief executive officer of Rogers Communications Inc., right, and Paul McAleese, president of Shaw Communications Inc., arrive at the Standing Committee on Industry and Technology investigating the proposed acquisition of Shaw by Rogers in Ottawa in January 2023.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Spencer Colby</span></span>
</figcaption>
</figure>
<p>Second, merger challenges take months of preparation. To do this properly, the Competition Bureau has to know what deal it’s looking at so it can build a strong case. </p>
<p>When a deal is substantially modified after the commissioner files a formal application, he has to adjust his evidence and strategy on the fly. In Rogers-Shaw, the tribunal and the Federal Court of Appeal said there was no unfairness to the commissioner, but this ignores the potential for strategic abuse of the rule in future cases. </p>
<h2>Proposals for reform</h2>
<p>While it can sometimes take years to change judge-made rules, the second phase of competition law reform, expected in the coming year, gives us a chance to nip the issues raised by Rogers-Shaw in the bud.</p>
<p>Here are two ideas for how to strike a balance between the need for flexibility when deals change after litigation starts, and ensuring merger review serves the public interest.</p>
<p>First, when post-challenge deal modifications incorporate remedies, parties should have to convince the tribunal these remedies are sufficient to address any anti-competitive concerns, unless the commissioner agrees they are adequate. </p>
<p>This ensures private parties cannot choose their own remedy without convincing the commissioner or tribunal it’s in the public interest. This should discourage self-serving low-ball remedy offers.</p>
<p>Second, there must be conditions that determine when a deal change is too late or too significant to be folded into an ongoing merger challenge, without putting an unfair or unreasonable burden on the commissioner or harming public interest.</p>
<p>One solution is to create a default rule saying major post-challenge changes to the original deal require a new notification, triggering a fresh review, unless parties can prove it’s not needed. This would allow the commissioner to study a new deal properly, ultimately leading to a faster resolution without litigation.</p><img src="https://counter.theconversation.com/content/197188/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jennifer Quaid holds research grants from the Social Sciences and Humanities Research Council of Canada. She is a Senior Fellow at the Centre for International Governance Innovation (CIGI) and the chair of the Legal Committee of Transparency International Canada. </span></em></p>The Rogers-Shaw decision is proving to be a legally significant case for Canada by setting a precedent that might make merger challenges harder in the future.Jennifer Quaid, Associate Professor & Vice-Dean Research, Civil Law Section, Faculty of Law, L’Université d’Ottawa/University of OttawaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2015542023-03-11T12:59:49Z2023-03-11T12:59:49ZJetBlue merger with Spirit not cleared for takeoff – why Justice Department is suing to scupper deal<figure><img src="https://images.theconversation.com/files/514695/original/file-20230310-15-7x9lo1.jpg?ixlib=rb-1.1.0&rect=49%2C106%2C5497%2C3530&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Stuck on the runway?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/JetBlueSpirit/9a027e428c5f4edfb2a7faff690109bf/photo?Query=JetBlue%20Spirit&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=45&currentItemNo=20">AP Photo/Wilfredo Lee</a></span></figcaption></figure><p><em>The U.S. Department of Justice has <a href="https://www.politico.com/news/2023/03/07/doj-sues-to-block-jetblues-3-8-billion-spirit-takeover-00085828">intervened to block a proposed deal</a> that would see carrier JetBlue buy budget service Spirit Airlines.</em></p>
<p><em>In a lawsuit filed on March 7, 2023, the department warned that allowing the US$3.8 billion deal to go through would “<a href="https://storage.courtlistener.com/recap/gov.uscourts.mad.254267/gov.uscourts.mad.254267.1.0.pdf">eliminate the unique competition</a>” that Spirit, the lower cost airline, currently provides.</em></p>
<p><em>The Conversation asked Joe Mazur, an <a href="https://joemazur.io">expert on mergers and acquisitions</a> at Purdue University, what consolidation in the airline industry – and the proposed JetBlue-Spirit merger – means for consumers, and why the government is keen to block it.</em></p>
<h2>Why is the Justice Department intervening?</h2>
<p>The JetBlue-Spirit merger would bring more consolidation into an already <a href="https://www.businessinsider.com/airline-mergers-and-acquisitions-in-the-us-since-2000-2020-3">heavily consolidated industry</a>.</p>
<p>But it is more nuanced than that. JetBlue and Spirit have very different business models – JetBlue has positioned itself at the higher end of the low-cost carrier space, whereas Spirit is a through-and-through, no-frills, ultra-low-cost carrier. It keeps prices down by sacrificing things such as complimentary snacks and drinks, entertainment and comfort.</p>
<p>Although the deal is framed as a merger, it is really an attempted hostile takeover <a href="https://news.northeastern.edu/2022/10/20/jetblue-spirit-acquisition/">of Spirit by JetBlue</a>. As such, it’s not just the Justice Department that is worried about the impact of losing Spirit. According to <a href="https://www.justice.gov/atr/case-document/file/1573131/download">the official complaint</a>, so too are Spirit’s board of directors.</p>
<p>The presence of an ultra-low-cost service like Spirit has a <a href="https://www.bu.ac.th/knowledgecenter/epaper/july_dec2004/sungkard.pdf">disciplining effect</a> on prices across the entire market – that is, it helps keep ticket prices down, especially in the markets where it competes.</p>
<p>The biggest concern is that if the merger is allowed to go ahead, JetBlue would simply reconfigure the assets of Spirit to match the service level and prices of JetBlue. For example, as cited in the complaint, JetBlue has indicated it plans to remove some seats from Spirit’s planes in order to bring them in line with the rest of the JetBlue fleet.</p>
<p>If it were the other way around – that is, if Spirit were buying JetBlue – then I’m not sure there would be a problem. Similarly if the merger was between Spirit and fellow low-cost carrier Frontier, a deal that was at <a href="https://www.cnbc.com/2022/07/27/spirit-airlines-frontier-terminate-deal-that-was-marred-by-jetblues-rival-bid.html">one point on the table</a>, the government may not have gotten involved.</p>
<h2>How does this proposed merger fit the industry trend?</h2>
<p>There has been a ton of consolidation over the last couple of decades. The pursuit of profit motivates most every merger attempt, and it’s no secret that airlines weren’t making money for a long stretch. The 9/11 terrorist attacks, a series of pilot strikes, rising fuel costs, and a couple of recessions <a href="https://doi.org//10.1016/j.jeconbus.2004.06.003">hit the industry hard</a> in the early 2000s.</p>
<p>In 2005, Northwest Airlines and Delta Air Lines <a href="https://www.nbcnews.com/id/wbna9317550">filed for bankruptcy</a>. They both restructured, through laying off staff and streamlining services, and came out of bankruptcy a couple years later. Then in 2008 they <a href="https://simpleflying.com/delta-northwest-merger/">announced a merger</a>.</p>
<p>At the same time you started to hear about “<a href="https://www.forbes.com/sites/tedreed/2022/04/18/will-wall-streets-capacity-discipline-enforcers-jump-back-in-as-airlines-report-earnings/?sh=3395d45b4873">capacity discipline</a>” – that is, the reduction, or at least slower introduction, of seats and flights overall. In short, the airlines were not competing as intensively in a bid to make flights more profitable for the entire industry. But such a plan is a lot easier to stick to when there are fewer players.</p>
<p>The deal between Delta and Northwest was followed by a series of other mergers. In 2010, United Airlines merged with Continental in an <a href="https://airwaysmag.com/continental-united-merger-completed/">$8.5 billion deal</a>. A year later, <a href="https://www.heraldtribune.com/story/news/2010/09/27/update-southwest-to-buy-airtran-for-14b/28969123007/">Southwest bought AirTran Airways</a> for $1.4 billion.</p>
<p>In 2013, American Airlines and US Airways merged to <a href="https://www.theguardian.com/business/2013/dec/09/american-us-airways-merge-worlds-biggest-airlines">form the largest carrier</a> in the world at that time. Other mergers followed, including the <a href="https://apex.aero/articles/charu-jain-alaska-airlines-virgin-america-merger/#:%7E:text=In%20December%202016%2C%20Alaska%20Airlines,president%20and%20chief%20information%20officer.">combination of Alaska Airlines and Virgin America</a> in 2016. Today, per the government’s official complaint, the largest four airlines represent some 80% of airline traffic.</p>
<p>If the JetBlue-Spirit deal is scuttled, it would be the first time since 2001 that two airlines have <a href="https://money.cnn.com/2001/07/27/deals/united_usair/">abandoned a proposed merger</a> in the face of a lawsuit from the Justice Department. In that case it was a proposed merger between United Airlines and US Airways that the Bush administration claimed would result in <a href="https://money.cnn.com/2001/07/27/deals/united_usair/">higher fares and worse service</a>. Since then the government has stepped in on numerous occasions to block airline mergers, but has eventually given the green light following concessions from the airlines.</p>
<h2>What was behind the trend to consolidate?</h2>
<p>The traditional argument for mergers put forward by airlines is that they <a href="https://doi.org/10.1007/s11151-019-09717-2">produce a higher-quality, more efficient product</a> – it is a win-win, they say, generating benefits for consumers and investors alike. Oftentimes this is at least partly true. </p>
<p>However, consolidation also leads to higher profits simply by virtue of reduced competition. That is, you tend to make more money when there aren’t as many competitors. For example, my daughter’s lemonade stand will sell more lemonade if there isn’t a rival stand across the street – and she can even charge more per cup!</p>
<p>Similarly, airlines make more money when fewer of them are competing, and part of that is being able to raise prices for consumers. This aspect of consolidation is where the <a href="https://www.ftc.gov/legal-library/browse/statutes/clayton-act">Clayton Act</a>, which outlaws anti-competitive mergers, becomes relevant. And the Clayton Act is the basis for the Justice Department’s suit. </p>
<p>Mergers can also bring about scale efficiencies – there are real, proven benefits to having a large network.</p>
<p>But JetBlue will almost certainly need to restructure the merger if it is to be successful. This would likely mean the divestiture of assets – for example, the sale of landing rights at some airports to budget airlines, or relinquishing gate leases to others – to increase competition. American Airlines and US Airways <a href="https://skift.com/2013/02/13/american-airlines-us-airways-merger-the-concessions-theyll-have-to-make/">agreed to similar concessions</a> before they were allowed to merge, and JetBlue has already indicated plans to divest assets at some airports. </p>
<p>Nevertheless, I do not expect the merger to go through without a drastic change in the expected use of Spirit’s assets.</p>
<h2>Do mergers necessarily mean higher airfare?</h2>
<p>It depends on the merger and the market in question. Studies <a href="https://doi.org/10.1111/1756-2171.12404">vary pretty widely</a> on this issue, based on the methodology they use, the macroeconomic context for the merger, and the type of businesses involved. But generally what you see is that after a merger, prices in overlap markets – those in which the two merging carriers compete – go <a href="https://doi.org/10.1111/1756-2171.12404">up by maybe 3-5% overall</a>, with larger increases on the order of 10-15% on routes where the overlap is especially significant. For JetBlue and Spirit, markets in and out of Fort Lauderdale, Boston, Hartford and others are most likely to see significant upticks.</p>
<p>This is because mergers generate upward pricing pressure by reducing competition. But, from a consumer’s point of view, that might be tolerable as long as the resulting product is better. This may be especially true if prices are held down because of resulting efficiency gains.</p>
<p>In the JetBlue and Spirit case, it might mean prices go up for the old Spirit flights, but not so much for the JetBlue flights. So if you are a JetBlue fan, this could be good news. It would mean that you can now fly to more places, and you get the same JetBlue services.</p>
<p>But if you are a Spirit die-hard, you will not like this at all. Instead of paying a lot less, you might have to pay more for a flight with add-ons you can do without. And if you are a frequent flier on just about any other airline, you can expect to lose the price-tempering effects of Spirit in the long run, given that it is the largest and fastest growing ultra-low-cost carrier in the market.</p>
<h2>Are claims that services improve through a merger true?</h2>
<p>The short answer appears to be yes for some mergers but not necessarily on all metrics. One study found that the effect of legacy mergers on fares was negligible and that overall, such deals were pro-competitive because they led to an <a href="https://doi.org/10.1016/j.ijindorg.2017.12.002">increase in capacity</a>.</p>
<p>As to other metrics, such as easier boarding, more on-time flights, or better in-flight services, that is harder to judge. One study of five airline mergers indicated that on-time performance may get better in the <a href="https://doi.org/10.1111/joie.12136">long run after the merger</a>, but even if on-time performance did improve, it may be the wrong way to look at service changes. If you are someone who relies on budget pricing, then being on time rather than a few minutes late, and having the option of nuts and a soda, might not be enough to offset the pain of having to hand over more money for the flight in the first place.</p><img src="https://counter.theconversation.com/content/201554/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joe Mazur has received funding from the National Science Foundation for study of competition models with application to the U.S. airline industry.</span></em></p>The Biden administration fears that further consolidation in the aviation industry will lead to worse outcomes for consumers – but do mergers necessarily push up prices?Joe Mazur, Assistant Professor of Economics, Purdue UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1521902021-02-08T19:07:01Z2021-02-08T19:07:01ZWe allowed Facebook to grow big by worrying about the wrong thing<figure><img src="https://images.theconversation.com/files/382689/original/file-20210205-16-a1t566.jpg?ixlib=rb-1.1.0&rect=207%2C330%2C2368%2C1170&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">AlexandraPopova/Shutterstock</span></span></figcaption></figure><p>Australia and the United States have been waving through takeovers because the targets are small, something that’s usually good practice.</p>
<p>Under <a href="https://www.australiancompetitionlaw.org/legislation/provisions/2010cca50.html">Australian</a> law takeovers are normally permitted unless they would </p>
<blockquote>
<p>have the effect, or be likely to have the effect, of substantially lessening competition</p>
</blockquote>
<p>Under <a href="https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/merge">US</a> law they are normally permitted unless their effect </p>
<blockquote>
<p>may be substantially to lessen competition, or to tend to create a monopoly</p>
</blockquote>
<p>It means the key question authorities in both countries ask before approving a takeover is whether it is big enough to take out a substantial competitor.</p>
<p>While in most industries that’s usually the right question, it’s the wrong question when it comes to digital platforms, as Facebook’s readily-approved takeovers of Instagram and WhatsApp is making clear.</p>
<h2>Instagram, WhatsApp ‘too small to matter’</h2>
<p>They were waved through because when Facebook acquired <a href="https://money.cnn.com/2012/04/09/technology/facebook_acquires_instagram/index.htm">Instagram in 2012</a> and <a href="https://about.fb.com/news/2014/02/facebook-to-acquire-whatsapp/">WhatsApp in 2014</a> each was small. Instagram reportedly had only <a href="https://time.com/4299297/instagram-facebook-revenue/">13</a> full-time employees, WhatsApp <a href="https://theconversation.com/whatsapp-bought-for-19-billion-what-do-its-employees-get-23496">55</a>.</p>
<p>Now, well after the events, the US Federal Trade Commission in cooperation with the attorneys of 46 states is <a href="https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization">suing Facebook</a>, alleging it has been illegally maintaining its social networking monopoly through a years-long course of anticompetitive conduct.</p>
<p>Identified as part of Facebook’s strategy are its 2012 acquisition of Instagram and its 2014 acquisition of WhatsApp. The Commission says the conduct </p>
<blockquote>
<p>harms competition, leaves consumers with few choices for personal social networking and deprives advertisers of the benefits of competition</p>
</blockquote>
<p>It is seeking a permanent injunction that could, among other things, require Facebook to divest assets including Instagram and WhatsApp and require it to give notice and seek prior approval for future acquisitions.</p>
<h2>No longer as small</h2>
<p>Why didn’t the Commission act earlier?</p>
<p>It’s because at the times of the acquisitions it was impossible for it to know whether Instagram or WhatsApp would ever have been in any position to offer Facebook much competition.</p>
<p>A 2019 <a href="https://ideas.repec.org/p/ces/ceswps/_7985.html">independent review</a> of merger decisions by the UK Office of Fair Trade confirms this, noting that back in 2012 Facebook faced much stronger competitors in photo-sharing than Instagram and that photo apps weren’t attractive to advertisers.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/facebook-is-merging-messenger-and-instagram-chat-features-its-for-zuckerbergs-benefit-not-yours-147261">Facebook is merging Messenger and Instagram chat features. It's for Zuckerberg's benefit, not yours</a>
</strong>
</em>
</p>
<hr>
<p>The authorities would have found it hard to convince a court that taking over Instagram would have substantially lessened competition.</p>
<p>Yet it did, hugely, and not because Instagram was necessarily the best target.</p>
<h2>Network effects empower the acquired</h2>
<p>Platforms such as Facebook and Google gain their market power from so-called “network effects” and the accumulation of consumer data. </p>
<p>A network effect is the benefit a network gets from having people already on it. A network that your friends aren’t on isn’t particularly attractive.</p>
<p>And the more people that join, the more data the network amasses to target ads for advertisers.</p>
<p>Looked at through the lens of network effects, the key to the successes of Instagram and WhatsApp was that they were bought by Facebook. It gave them access to a vast network of existing users and their data.</p>
<p>The importance of this is illustrated by the WhatsApp takeover. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1217&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1217&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1217&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">WhatsApp wasn’t to link data with Facebook.</span>
</figcaption>
</figure>
<p>In Europe the authorities allowed the takeover only after Facebook informed them that it would be “<a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1369">unable to establish reliable automated matching between Facebook users’ accounts and WhatsApp users’ accounts</a>”. </p>
<p>Unfortunately this statement was incorrect, and the European Commission believes Facebook knew it at the time.</p>
<p>In 2017 after the WhatsApp and Facebook data was indeed linked, the Commission fined Facebook <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1369">€110 million</a> for providing incorrect or misleading information</p>
<p>The problem wasn’t that Facebook acquired WhatsApp in particular. </p>
<p>It was that once it had acquired it (or any such platform), it was able to ensure it had access to the network and data needed to dominate its part of the market.</p>
<p>In other words, a Facebook acquisition of any proven start-up in any related field would have been likely to substantially lessen competition and should have been illegal.</p>
<h2>Courts and regulators are missing what matters</h2>
<p>This truth requires a change of mindset by both competition authorities and the courts. Both deal with the specifics of the target rather than the potential for the acquirer to supercharge the target and prevent any rival emerging to challenge it.</p>
<p>It means that to protect competition, dominant digital platforms should be prevented from acquiring any business in certain markets, even if there is plenty of competition in those markets and there’s nothing special about the targets.</p>
<p>Put bluntly, in some markets, whoever Facebook acquires will smother competition and the only way to stop that happening is to stop Facebook acquiring anyone.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/facebook-is-tilting-the-political-playing-field-more-than-ever-and-its-no-accident-148314">Facebook is tilting the political playing field more than ever, and it's no accident</a>
</strong>
</em>
</p>
<hr>
<p>This needn’t mean a blanket ban on dominant platforms acquiring firms, but it will mean the range of firms they can acquire will be severely wound back.</p>
<p>Of course, there’s nothing to stop them developing their own platforms in adjacent areas, although history has shown that even dominant platforms have a hard time developing, rather than buying, the necessary technology. </p>
<p>Google had to <a href="https://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Alphabet">buy</a> Android, YouTube and Quickoffice.</p>
<h2>Proposed changes the wrong ones</h2>
<p>It also means Australia’s Competition and Consumer Commission is missing the mark in its drive to expand the reasons it can use for rejecting mergers.</p>
<p>The final report of its <a href="https://www.accc.gov.au/system/files/Digital%20platforms%20inquiry%20-%20final%20report%20-executive%20summary.pdf">digital platforms inquiry</a> asks for the power to reject mergers because of the likelihood that the acquisition would result in the removal of a potential competitor and the nature and significance of assets acquired. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=184&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=184&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=184&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=231&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=231&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=231&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>The requests focus on the target rather than what the acquirer can do for it.</p>
<p>What needs to be made clear is that a merger can be anticompetitive even if the target is not uniquely placed, either in terms of its ability to grow or its assets. </p>
<p>In the digital world an acquirer can substantially lessen competition simply by transforming the market it buys into. The target needn’t be the point.</p><img src="https://counter.theconversation.com/content/152190/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen King is a Commissioner with the Productivity Commission. The views expressed in this article are his alone and should not be attributed to the Commission.</span></em></p>What made Facebook grow big wasn’t what its targets would have been without it, it was what they were able to do with it.Stephen King, Adjunct professor, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1444202020-08-24T04:28:33Z2020-08-24T04:28:33ZSome Australian universities might have to merge – and that’s not necessarily a bad thing<figure><img src="https://images.theconversation.com/files/353967/original/file-20200820-20-7gte3d.jpg?ixlib=rb-1.1.0&rect=4%2C0%2C2814%2C1832&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/university-south-australia-adelaide-27-july-555486952">Shutterstock</a></span></figcaption></figure><p>Both COVID-19 and increasing <a href="https://theconversation.com/australia-has-dug-itself-into-a-hole-in-its-relationship-with-china-its-time-to-find-a-way-out-138525">discord with the Chinese government</a> could lead to <a href="https://theconversation.com/australian-universities-could-lose-19-billion-in-the-next-3-years-our-economy-will-suffer-with-them-136251">much lower international student revenues</a> in the long run. If that happens, Australian universities might have to merge to remain sustainable. </p>
<p>The growing quality of our universities is driven to a large extent by what economists call “economies of scale.” The idea is that operating on a larger scale enables an organisation to deliver more value. By admitting more students, including international ones, universities can offer more programs, improved campuses and better academic staff.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australian-universities-could-lose-19-billion-in-the-next-3-years-our-economy-will-suffer-with-them-136251">Australian universities could lose $19 billion in the next 3 years. Our economy will suffer with them</a>
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<p>The ability of our universities to perform their vital functions of research and teaching depends in an intricate way on the sector’s structure and its relationship with international students. Two recent developments call into question the sustainability of Australia’s universities in their current form. </p>
<h2>COVID-19’s impact on international students</h2>
<p>First, the COVID-19 pandemic has inflicted a direct hit to universities’ revenues. This is mainly due to the big fall in international student numbers as a result of Australia’s border closure. </p>
<p>The <a href="https://theconversation.com/how-universities-came-to-rely-on-international-students-138796">share of international students in our universities</a> is exceptionally high by world standards. The fact that international students pay more in fees than domestic ones amplifies the impact on revenues. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/covid-19-what-australian-universities-can-do-to-recover-from-the-loss-of-international-student-fees-139759">COVID-19: what Australian universities can do to recover from the loss of international student fees</a>
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<p>The internationalisation of Australia’s universities has benefited them enormously over many years. Universities have been able to grow not just in terms of student numbers, but also in terms of campus facilities, degrees and subjects offered, and quality and quantity of academic staff. </p>
<p>This growth also benefits domestic students. They enjoy the same facilities, programs and staff that economies of scale enable. </p>
<p>The Australian public as a whole also indirectly benefits from the influx of international students. Firstly, taxpayers effectively pay less to sustain the university sector. Secondly, we as a society benefit from the fruits of academic research and teaching.</p>
<h2>Challenges from China</h2>
<p>A second factor is Australia’s political relationship with China. Its impacts on the university sector are becoming more apparent, because Chinese students comprise the largest group of international students in Australia. </p>
<p>Having grown up in a political system that is based on surveillance, intolerance and oppression, some Chinese students struggle to adapt to <a href="https://www.theguardian.com/australia-news/2020/aug/03/unsw-faces-backlash-after-deleting-twitter-post-critical-of-chinas-crackdown-in-hong-kong">Australia’s intellectual environment</a>. </p>
<p>Our universities must continue to encourage diversity of opinion and freedom of expression – even when these values clash with the worldviews instilled by the the Chinese Communist Party (CCP). Instead, to protect their international student revenues, some universities <a href="https://www.abc.net.au/news/2020-08-03/unsw-under-fire-for-deleting-china-social-media-posts/12517306">censor staff and other students</a>. Staff and students also <a href="https://www.smh.com.au/national/more-must-be-done-to-protect-academic-freedoms-under-threat-from-china-20190406-p51bjm.html">self-censor</a> their own legitimate viewpoints.</p>
<p>Universities face a choice: uphold intellectual freedom, or pursue international student revenues, which sustain the universities’ scale, at any cost. The university sector must re-examine its values and objectives. In our pursuit of academic excellence and growth we cannot let revenues dictate our opinions or, more to the point, let the CCP shape our universities. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/students-in-china-heed-their-governments-warnings-against-studying-in-australia-141871">Students in China heed their government's warnings against studying in Australia</a>
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<h2>A time for consolidation</h2>
<p>Both COVID-19 and Australia’s geopolitical relationship with China might lead to much lower international student revenues in the future. How then can our university sector ensure its sustainability?</p>
<p>While painful to acknowledge, a natural structural response in this situation is consolidation within the university sector. Our universities cannot improve sustainably if student numbers decrease or if the threat of politically motivated extortion leads us to abandon basic freedoms.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/without-international-students-australias-universities-will-downsize-and-some-might-collapse-altogether-132869">Without international students, Australia's universities will downsize – and some might collapse altogether</a>
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<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/353969/original/file-20200820-16-zigmx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="UniSA Vice- Chancellor David Lloyd" src="https://images.theconversation.com/files/353969/original/file-20200820-16-zigmx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/353969/original/file-20200820-16-zigmx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/353969/original/file-20200820-16-zigmx2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/353969/original/file-20200820-16-zigmx2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/353969/original/file-20200820-16-zigmx2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/353969/original/file-20200820-16-zigmx2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/353969/original/file-20200820-16-zigmx2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">UniSA Vice Chancellor David Lloyd has suggested merging South Australia’s three universities into ‘two strong state universities’.</span>
<span class="attribution"><span class="source">UniSA</span></span>
</figcaption>
</figure>
<p>Consolidation happens naturally in unregulated markets. When a market shrinks or growth slows, firms merge. They do so to continue to benefit from the economies of scale that enable them to create value. </p>
<p>Mergers would be a natural solution to the current problems in the university sector as well.</p>
<p>Consolidation is not just a hypothetical idea. <a href="https://www.adelaidenow.com.au/education/tertiary/unisa-vice-chancellor-david-lloyd-proposes-merging-adelaides-three-universities-into-two/news-story/b4b33f39b333a0eb5d925e00c1128a76">Some</a> Australian <a href="https://www.afr.com/work-and-careers/education/south-australia-uni-merger-back-on-the-cards-20200809-p55jzm">universities</a> have already <a href="https://www.smh.com.au/national/all-over-red-rover-top-unis-drive-biggest-overhaul-in-30-years-20200605-p5500b.html">considered mergers</a>. There are also successful <a href="https://www.deakin.edu.au/__data/assets/pdf_file/0006/402594/swp2003_07.pdf">past examples</a> both <a href="https://www.deakin.edu.au/library/aotw/about">here</a> and <a href="https://www.eua.eu/resources/publications/828:university-mergers-in-europe.html">overseas</a>. </p>
<h2>The pros and cons of mergers</h2>
<p>Universities may be reluctant to pursue mergers for a number of reasons. Some are valid and some less so.</p>
<p>Mergers can have real downsides. When organisations merge, cultural and operational differences can sometimes lead to worse outcomes. </p>
<p>There is also value in diversity. Having many different institutions provide differentiated educational programs gives students more choices. And competition between universities is itself valuable, as it promotes educational innovation and drives quality improvements. </p>
<p>All of these are valid reasons. They should be carefully weighed against the benefits of mergers.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/353971/original/file-20200820-20-znj87n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="University of Adelaide entrance on North Terrace, Adelaide" src="https://images.theconversation.com/files/353971/original/file-20200820-20-znj87n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/353971/original/file-20200820-20-znj87n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/353971/original/file-20200820-20-znj87n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/353971/original/file-20200820-20-znj87n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/353971/original/file-20200820-20-znj87n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/353971/original/file-20200820-20-znj87n.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/353971/original/file-20200820-20-znj87n.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The University of Adelaide’s newly appointed chancellor, Catherine Branson, has reopened the door to mergers.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/adelaide-south-australia-on-november-07-1224427114">Shutterstock</a></span>
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<p>But other impediments to consolidation are less defensible. Highly paid and politically influential university administrators, including vice chancellors, deputies and deans, might resist mergers that could put some of their jobs at risk.</p>
<p>On the other hand, consolidation would deliver benefits to universities. It would enable them to continue to operate at a larger scale, even if international student revenues decline. It would also reduce overhead costs. An example would be eliminating redundant administrative roles that are not essential to the mission of a university. </p>
<p>Mergers would also enable universities to compete in the global academic market. They could continue to improve in quality, thanks to the economies of scale.</p>
<p>The new reality of decreasing student revenues means the Australian university sector will have to grapple with the questions of scale and sustainability. One response might be for <a href="https://theconversation.com/without-international-students-australias-universities-will-downsize-and-some-might-collapse-altogether-132869">universities to downsize</a>. But this would inevitably affect their quality. </p>
<p>Consolidation might therefore offer a better long-term path to sustainability. It will enable universities to continue to operate at scale and invest more in the quality of the education they provide.</p><img src="https://counter.theconversation.com/content/144420/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Emil Temnyalov does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australian universities face a huge revenue hit from falling international student numbers due to COVID-19 and tensions with China. Some institutions should consider merging rather than downsizing.Emil Temnyalov, Senior Lecturer, Economics, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1304522020-02-11T20:07:46Z2020-02-11T20:07:46ZHow the T-Mobile-Sprint merger will increase inequality<figure><img src="https://images.theconversation.com/files/314835/original/file-20200211-146674-1s8c3ei.jpg?ixlib=rb-1.1.0&rect=93%2C46%2C4379%2C2930&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The lawsuit filed by New York Attorney General Letitia James and 13 colleagues was the last roadblock to the merger. </span> <span class="attribution"><span class="source">Drew Angerer/Getty Images</span></span></figcaption></figure><p>A <a href="https://www.bloomberg.com/news/articles/2020-02-11/t-mobile-sprint-judge-didn-t-buy-state-claims-of-antitrust-harm?srnd=premium">federal judge gave his blessing</a> to the US$26.5 billion merger between T-Mobile and Sprint on Feb. 11, several months after the deal got <a href="https://www.geekwire.com/2019/democrat-regulators-warn-fcc-approval-t-mobile-sprint-merger-creates-cozy-oligopoly/">final antitrust approval</a> from the U.S. government. </p>
<p>A group of attorneys general from 13 states and the District of Columbia <a href="https://abcnews.go.com/Business/trial-begins-state-ags-lawsuit-mobile-sprint-megamerger/story?id=67598013">had sued to try to block the merger</a>, arguing it would reduce competition in the telecommunications industry and raise customer prices by billions of dollars. </p>
<p>Let me add a third reason the judge should have blocked the deal: It will likely increase economic inequality. </p>
<p>Research on inequality, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2395438">including my own</a>, has generally focused on how <a href="https://www.nber.org/papers/w7038">economic growth</a>, <a href="https://www.cfr.org/backgrounder/inequality-and-tax-rates-global-comparison">tax policy</a> and the <a href="https://data.nber.org/reporter/winter03/technologyandinequality.html">use of technology</a> affects it. Less attention has been paid to another important factor: enforcement of antitrust laws. </p>
<p>With the <a href="https://www.hup.harvard.edu/catalog.php?isbn=9780674979857">gap between rich and poor</a> <a href="https://www.washingtonpost.com/business/2019/09/26/income-inequality-america-highest-its-been-since-census-started-tracking-it-data-show/">soaring to new historic highs</a>, tackling the problem has become increasingly necessary.</p>
<p>My research on <a href="https://rbj.net/2020/01/20/we-need-to-bolster-antitrust-enforcement/">inequality and antitrust</a> suggests the U.S. could begin to rein in its yawning wealth gap by again vigorously cracking down on anti-competitive behavior in the marketplace – just as it did during the mid-20th century.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/314875/original/file-20200211-146696-9x7fem.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/314875/original/file-20200211-146696-9x7fem.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=421&fit=crop&dpr=1 600w, https://images.theconversation.com/files/314875/original/file-20200211-146696-9x7fem.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=421&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/314875/original/file-20200211-146696-9x7fem.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=421&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/314875/original/file-20200211-146696-9x7fem.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=529&fit=crop&dpr=1 754w, https://images.theconversation.com/files/314875/original/file-20200211-146696-9x7fem.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=529&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/314875/original/file-20200211-146696-9x7fem.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=529&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">American statesman and lawmaker John Sherman authored the Sherman Act.</span>
<span class="attribution"><span class="source">Bettmann Archive/Getty Images</span></span>
</figcaption>
</figure>
<h2>Origins of antitrust</h2>
<p>The U.S. has three principal federal antitrust laws: the <a href="https://www.investopedia.com/terms/s/sherman-antiturst-act.asp">Sherman Act</a>, the Clayton Act and the Federal Trade Commission Act.</p>
<p>The Sherman Act, passed in 1890, forbids anti-competitive agreements as well as conduct that monopolizes or attempts to dominate a particular market. This applies to cartels and to any attempt to fix prices, reduce industrial output, share markets or exclude competition. </p>
<p>The administration of President Theodore Roosevelt aggressively enforced the Sherman Act, which led to the <a href="https://learning.blogs.nytimes.com/2012/05/15/may-15-1911-supreme-court-orders-standard-oil-to-be-broken-up">breakup of Standard Oil in 1911</a>. </p>
<p>The Clayton Act strengthened Sherman by more precisely defining anti-competitive behavior, while the Federal Trade Commission Act <a href="https://www.ftc.gov/about-ftc/what-we-do">provided the federal government with an agency</a> to investigate potential violations of its antitrust laws. Both laws were passed in 1914.</p>
<p>Over time, the federal courts <a href="https://www.businessjustice.com/antitrust-standards-of-review-the-per-se-rule-of-reason-and-quic.html">developed a body of antitrust law</a> that made certain kinds of anti-competitive behavior explicitly illegal. Other types of behavior were subject to a more detailed and laborious case-by-case analysis to ascertain whether the conduct in question unreasonably restrained trade.</p>
<p>But, apart from the 1900s, the federal government <a href="https://hbr.org/2017/12/the-rise-fall-and-rebirth-of-the-u-s-antitrust-movement">didn’t vigorously enforce antitrust laws</a> until the late 1930s, when President Franklin Delano Roosevelt appointed Thurman Arnold to run the Justice Department’s antitrust division. Arnold ushered in three decades of <a href="https://lawecommons.luc.edu/cgi/viewcontent.cgi?referer=&httpsredir=1&article=1494&context=facpubs">robust enforcement</a>, including a <a href="https://promarket.org/140-years-antitrust2/">landmark case</a> against the American Medical Association, which allowed doctors to work with health maintenance organizations for the first time.</p>
<h2>Antitrust goes out of style</h2>
<p>This enthusiasm for promoting competitive markets and consumer welfare began to change in the early 1970s. </p>
<p>Conservative judges and legal scholars such as <a href="https://www.washingtonpost.com/news/wonk/wp/2012/12/20/antitrust-was-defined-by-robert-bork-i-cannot-overstate-his-influence/">Robert Bork</a> argued that the purpose of antitrust should be to <a href="https://scholarworks.law.ubalt.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1676&context=all_fac">promote economic efficiency</a>, rather than consumer welfare. </p>
<p>This viewpoint dovetailed nicely with Ronald Reagan’s own views about the role of the government in markets. So when he became president in 1981, Reagan <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=276913">appointed two like-minded conservative scholars</a>, William Baxter and James Miller, to head the antitrust division and the FTC.</p>
<p>Focused solely on the promotion of economic efficiency, Baxter, Miller and judges with similar views <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2769132">dramatically reduced</a> the scope of antitrust enforcement. And the range of conduct that would previously be condemned by courts as anti-competitive decreased and the proof required to demonstrate harm to plaintiffs increased. </p>
<p>This gave businesses much greater freedom to seek profit through <a href="http://dx.doi.org/10.2139/ssrn.2612047">anti-competitive means</a>. As a result, <a href="https://news.cision.com/ibisworld/r/top-10-highly-concentrated-industries,c9219248">numerous industries</a> from search engines and telecoms to soda companies and tire makers <a href="https://www.economist.com/graphic-detail/2016/03/24/corporate-concentration">have become dominated by a handful of companies</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/314614/original/file-20200210-109951-pwvqal.jpg?ixlib=rb-1.1.0&rect=85%2C141%2C4642%2C2863&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/314614/original/file-20200210-109951-pwvqal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=382&fit=crop&dpr=1 600w, https://images.theconversation.com/files/314614/original/file-20200210-109951-pwvqal.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=382&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/314614/original/file-20200210-109951-pwvqal.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=382&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/314614/original/file-20200210-109951-pwvqal.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=480&fit=crop&dpr=1 754w, https://images.theconversation.com/files/314614/original/file-20200210-109951-pwvqal.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=480&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/314614/original/file-20200210-109951-pwvqal.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=480&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Many industries in the U.S. are dominated by just a handful of companies, such as Amazon and Apple.</span>
<span class="attribution"><span class="source">Aytac Unal/Anadolu Agency/Getty Images</span></span>
</figcaption>
</figure>
<h2>Impact on inequality</h2>
<p>This exacerbates inequality in three ways. </p>
<p>First, when a company has market power in an industry, it can set prices on its own terms, higher than it would otherwise be able to in a more competitive environment. This <a href="https://pdfs.semanticscholar.org/2810/b52e7f8b827c67ded8ed60d2afd66802cf0f.pdf">transfers wealth from customers</a> who pay the higher prices to the dominant company. Because the managers and the owners of these powerful businesses tend to be wealthier than their consumers, this wealth transfer is regressive and therefore promotes economic inequality.</p>
<p>A second kind of anti-competitive behavior <a href="https://corpgov.law.harvard.edu/2016/08/10/mergers-and-acquisitions-technological-change-and-inequality/">arises in the context of mergers and acquisitions</a>, such as the T-Mobile-Sprint deal. The telecoms sector was already very concentrated, and <a href="https://www.theatlantic.com/ideas/archive/2019/10/t-mobile-and-sprints-merger-will-hurt-consumers/599245/">now it’s expected to get even worse</a>.</p>
<p>Or take the health care industry. After the Affordable Care Act became law, <a href="https://www.kaufmanhall.com/news/hospital-merger-and-acquisition-activity-sharply-2015-according-kaufman-hall-analysis">there was a wave of hospital mergers</a>. These mergers <a href="https://www.rwjf.org/en/library/research/2012/06/the-impact-of-hospital-consolidation.html">led to price increases</a> of over 20% for consumers.</p>
<p>So, once again, we have regressive wealth transfers from poorer consumers to wealthier hospital owners and managers.</p>
<p>Finally, anti-competitive behavior frequently arises when there is common ownership of corporations. The airline industry provides a great illustration of this. </p>
<p>From 2013 to 2015, the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2427345">same seven shareholders controlled</a> 60% of United Airlines, 27.5% of Delta, 27.3% of JetBlue and 23.3% of Southwest. Harvard law professor Einer Elhaug <a href="https://corpgov.law.harvard.edu/2019/05/20/how-horizontal-shareholding-harms-our-economy-and-why-antitrust-law-can-fix-it/">argues</a> this kind of common ownership of multiple companies in an industry is very likely to lead to anti-competitive prices. </p>
<p>And that’s exactly what researchers have found. A 2018 paper <a href="https://doi.org/10.1111/jofi.12698">showed that ticket prices</a> are 3% to 11% higher due to common ownership, and studies of the <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2710252">banking</a> and <a href="https://promarket.org/antitrust-answer-rising-wealth-inequality/">other industries</a> have found similar effects. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/314802/original/file-20200211-146708-1bi25rc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/314802/original/file-20200211-146708-1bi25rc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=419&fit=crop&dpr=1 600w, https://images.theconversation.com/files/314802/original/file-20200211-146708-1bi25rc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=419&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/314802/original/file-20200211-146708-1bi25rc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=419&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/314802/original/file-20200211-146708-1bi25rc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=527&fit=crop&dpr=1 754w, https://images.theconversation.com/files/314802/original/file-20200211-146708-1bi25rc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=527&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/314802/original/file-20200211-146708-1bi25rc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=527&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Sprint Executive Chairman Marcelo Claure, left, and T-Mobile US CEO John Legere spoke at a House subcommittee hearing on their companies’ merger.</span>
<span class="attribution"><span class="source">AP Photo/Jose Luis Magana</span></span>
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<h2>An American tradition</h2>
<p>Americans now have over four decades of experience with relatively lax antitrust enforcement focused almost exclusively on the narrow criterion of economic efficiency. The resulting picture is not pretty.</p>
<p>Poorer consumers have padded the balance sheets of wealthier companies through prices that are higher than they would have been with more aggressive antitrust enforcement. I and <a href="https://scholarship.law.georgetown.edu/facpub/1462">other researchers argue</a> this has contributed to <a href="https://blogs.umass.edu/bikehara/2014/10/02/capital-in-the-twenty-first-century/">soaring economic inequality</a> since around 1980. </p>
<p>But since economic power <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2769132">leads to political power</a>, these companies <a href="https://www.cambridge.org/core/journals/perspectives-on-politics/article/testing-theories-of-american-politics-elites-interest-groups-and-average-citizens/62327F513959D0A304D4893B382B992B">have used their resources</a> to lobby for rules and regulations that further narrow the scope of antitrust laws and harm consumers. </p>
<p>[<em><a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=expertise">Expertise in your inbox. Sign up for The Conversation’s newsletter and get a digest of academic takes on today’s news, every day.</a></em>]</p><img src="https://counter.theconversation.com/content/130452/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amitrajeet A. Batabyal does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The T-Mobile-Sprint merger is the latest example of weakened enforcement of antitrust laws, which reduces competition and exacerbates already-record levels of inequality.Amitrajeet A. Batabyal, Arthur J. Gosnell Professor of Economics, Rochester Institute of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1133102019-03-12T10:00:49Z2019-03-12T10:00:49ZAir France–KLM: when cooperation becomes confrontation<figure><img src="https://images.theconversation.com/files/263203/original/file-20190311-86707-1ik0es1.jpg?ixlib=rb-1.1.0&rect=0%2C241%2C2300%2C1483&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Air France planes await their passengers (2010).</span> <span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Air_France_liveries.jpg">Mathieu Marquer/Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>On February 27, the unexpected acquisition by the Netherlands of 14% of Air France–KLM’s capital seemed to trigger a <a href="https://www.express.co.uk/news/world/1093907/France-news-air-france-klm-netherlands-eu-news">diplomatic conflict between the two nations</a>. Because the French state holds 14.29%, this <a href="https://www.youtube.com/watch?v=_0fe6PjcR2Q">rebalancing of power may seem legitimate</a>. Indeed, to defend its interests, the Dutch state will probably join the company’s board to <a href="https://www.forbes.com/sites/martinrivers/2019/02/27/why-are-air-france-klm-shareholders-so-scared-of-the-dutch-government/">influence strategic decisions</a>. So the move can be seen as a normalization of previously unbalanced relations between the two partners.</p>
<h2>A powerful European alliance that significantly evolved</h2>
<p>Air France acquired KLM 15 years ago but it has remained relatively autonomous – the goal was to maintain two strong national brands within a European alliance <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2142915">rather than a merger</a>. The fleets of Air France, 305 aircraft, and KLM, 169, are <a href="https://www.sciencedirect.com/science/article/abs/pii/S0969699716304070">interdependent and complementary</a>, each with a powerful brand image. However, increasing globalisation has made it difficult for both companies to maintain a <a href="https://www.cairn.info/revue-herodote-2004-3-page-56.htm">strong national identity</a>, and their separate management has proven to be <a href="https://simpleflying.com/air-france-klm-ceo-demands-a-proper-merger-big-changes-to-disjointed-airlines/">financially problematic</a>. </p>
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<iframe width="440" height="260" src="https://www.youtube.com/embed/B2mENMLUyWA?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">French and Dutch authorities hold talks to defuse Air France-KLM dispute.</span></figcaption>
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<p>Since the alliance began, KLM has doubled in size and although it remains smaller than Air France, it contributes four times more to the overall operating profit. Air France’s <a href="https://www.bloomberg.com/news/features/2018-08-22/the-future-of-air-france-depends-on-becoming-less-french">instability, poor performance and labor conflicts</a> have not helped things. Despite the changing financial situation, the <a href="https://journals.sagepub.com/doi/abs/10.1177/0149206313488209">group’s governance is still the same</a>. The situation is reminiscent of how the Renault-Nissan alliance was managed, with Renault remaining supreme despite Nissan’s recovery.</p>
<p>Meanwhile, <a href="https://www.taylorfrancis.com/books/9781317138259">the aviation sector is facing several challenges</a>, the competitors are seeking to strengthen their positions. The other major European airlines, Lufthansa, Iberia and British Airways, want to increase their international activity. <a href="https://www.taylorfrancis.com/books/e/9781351559638/chapters/10.4324/9781315091617-10">Low-cost airlines are putting considerable pressure on prices</a>. American, Chinese, and subsidized Gulf airlines have launched aggressive strategies. <a href="https://www.flightglobal.com/news/articles/delta-china-eastern-to-take-air-france-klm-stakes-439743/">Delta and China Eastern each own 8.76% of Air France–KLM, and they will both have 18% of the voting rights</a>.</p>
<h2>The reasons for Dutch frustration</h2>
<p>In Europe, the Netherlands disagrees with France in many budgetary and military areas, and <a href="https://www.reuters.com/article/us-netherlands-nato/dutch-pm-rutte-nato-remains-cornerstone-of-european-defense-idUSKCN1NL1RH">regularly opposes French proposals</a>. Regarding the Air France–KLM alliance, <a href="https://www.bloomberg.com/news/articles/2019-02-16/tensions-rise-at-air-france-klm-over-fate-of-dutch-unit-s-ceo">tensions had arisen over the future of Pieter Elbers</a>, KLM’s CEO since 2011. The group <a href="https://www.bloomberg.com/news/articles/2019-02-08/air-france-klm-is-said-to-weigh-changing-dutch-head-for-new-era">hesitated to renew his mandate</a>, despite his performance and achievements. The board finally reappointed him on February 19. The French Ministry of Economy now insists that the board offered to make him CEO of the group, but that he refused.</p>
<p>If France considers it can hold shares in strategic assets to influence decisions concerning them, it is surprising that it denies <a href="https://www.bloomberg.com/news/articles/2019-02-26/dutch-government-buys-air-france-klm-stake-aims-to-match-france">another country to have the same right</a>. Given the importance of Schiphol airport to the national economy, the Netherlands want to prevent it being relegated to a secondary position, which may happen given the group’s strategy favoring Charles de Gaulle Airport in Paris. Their reaction is therefore quite understandable.</p>
<p>Since taking office on September 17, 2018, <a href="https://uk.reuters.com/article/uk-air-france-klm-ceo-france/france-to-back-ben-smith-as-new-air-france-klm-ceo-source-idUKKBN1L117O">Ben Smith, the new group CEO</a>, has seemed to favor French interests. As a Canadian citizen, he is supposed to be <a href="https://www.bloomberg.com/news/features/2018-08-22/the-future-of-air-france-depends-on-becoming-less-french">independent and non-partisan</a>, but his readiness to sit on the board aroused suspicions. Then, the French stakeholders took several decisions without informing the other partners, which could have triggered the Dutch reaction, spectacular in its execution, but measured in its proportions.</p>
<p>The recent strategy of wanting to <a href="https://www.youtube.com/watch?v=xbE8AIlwqcI">distinguish between the two brands</a> by making Air France more upmarket than KLM could have hurt Dutch pride. Thus, their desire to return to an <a href="https://www.neweurope.eu/article/dutch-government-buys-into-air-france-klm-to-counter-french-influence/">equal partnership between KLM and Air France seems justified</a>.</p>
<h2>An unfriendly but legitimate financial transaction</h2>
<p>However, the French state was informed only one hour from the official announcement, just before the deadline allowed for this type of stock market operation. This cover-up may be particularly <a href="https://www.politico.eu/article/dutch-government-purchase-of-air-france-klm-shares-sparks-french-outrage/">surprising and vexing for the French authorities</a>, who repeatedly, but unsuccessfully, asked the Dutch government to buy Air France–KLM shares during the summer of 2017, when Delta and China Eastern announced they would be doing so.</p>
<p>Bruno Lemaire, the French Minister of the Economy, considers the Dutch government’s decision <a href="https://twitter.com/BrunoLeMaire/status/1100767457374072832">“incomprehensible and unexpected”</a>. He talks of an <a href="https://www.reuters.com/article/us-netherlands-air-france-klm-france/dutch-acted-like-corporate-raider-on-air-france-klm-french-government-source-idUSKCN1QG1OU">“unfriendly” operation, “trader’s techniques,” and a “value destructive” decision</a>. He was deeply disappointed that he had met his Dutch counterpart, Wopke Hoekstra, the week before, and discussed the alliance without the long-planned approach being mentioned. Bruno Lemaire also denounced the operation as “deceptive” and “secret.” It could not be improvised, requiring decisions at the highest level of state, the complicity of important stakeholders, and careful planning to avoid alerting financial markets. <a href="https://www.youtube.com/watch?v=B2mENMLUyWA">Both ministers vowed to focus on the future</a>, but their visions may not be the same.</p>
<p>Even the French president Emmanuel Macron made a statement, <a href="https://nltimes.nl/2019/02/28/nl-must-make-intentions-air-france-klm-clear-french-president-says">asking the Netherlands to clarify their intentions</a> and recalled, “What matters is that the firm’s interests are maintained.” This is probably an indirect warning to Dutch leaders not to use this type of approach to attract voters in the run-up to important elections in the Netherlands. <a href="https://www.ft.com/content/37745592-3c3b-11e9-b72b-2c7f526ca5d0">Protectionism is popular among Dutch citizens</a>, who see it as reaffirming their country’s sovereignty.</p>
<h2>Deep and lasting consequences</h2>
<p>The talk of treason and disloyalty shows that the breakdown in trust between the two European partners will probably last for some time. This is a new step in the trend away from a European approach to industrial interests and back to a national approach. <a href="https://www.thetimes.co.uk/article/french-fury-after-dutch-buy-stake-in-air-france-klm-gc9grbphv">This trend is symptomatic of more brutal, opportunistic, and interventionist relations</a>, as evidenced by <a href="https://www.youtube.com/watch?v=gz0lRyrMMrE">the recent conflicts between France and Italy</a>. It is also a new form of isolationism in the defense of economic interests, like Brexit.</p>
<p>Although France’s position does not appear to be jeopardized because of its double voting rights on some of its shares and the 4% held by Air France employees, it could decide to invest in more capital. Otherwise, the French state might soon be outvoted by an alliance between the Dutch and another non-European nation, USA or China. An accumulation of strategic disagreements <a href="https://www.youtube.com/watch?v=y4iIceAsa60">could lead to irremediable conflict and the end of the alliance</a>.</p>
<p>The Netherlands spent <a href="https://www.ft.com/content/37745592-3c3b-11e9-b72b-2c7f526ca5d0">744 million euros on Air France–KLM shares</a>, so presumably they consider the investment one of major economic interest. The Dutch airline’s <a href="https://www.forbes.com/sites/martinrivers/2019/02/27/why-are-air-france-klm-shareholders-so-scared-of-the-dutch-government/">recovery, good management, and profitability testify to its knowhow</a>. Ben Smith may well resign if he considers himself unable to implement the <a href="https://www.ainonline.com/aviation-news/air-transport/2019-02-19/air-france-klm-strengthens-group-structure">strategy of a full merger</a>, and thus the <a href="https://skift.com/2019/02/14/its-time-to-let-air-france-klms-new-ceo-take-charge-of-the-company/">loss of KLM’s autonomy</a>, which he feels the group needs.</p><img src="https://counter.theconversation.com/content/113310/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Oihab Allal-Chérif ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>The surprise acquisition by the Netherlands of 14% of Air France–KLM, which triggered a dispute between the two nations, reveals a trend toward more of a national approach to industrial interests.Oihab Allal-Chérif, Full Professor, Information Systems and Purchasing Management, Neoma Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1014542018-08-15T20:09:26Z2018-08-15T20:09:26ZSize isn’t everything when it comes to the proposed UniSA-University of Adelaide merger<figure><img src="https://images.theconversation.com/files/231846/original/file-20180814-2924-5ce6e8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Merging UniSA and the University of Adelaide could produce a number of benefits.</span> <span class="attribution"><span class="source">Michael Coghlan/flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>The <a href="https://www.adelaide.edu.au/news/news100742.html">proposed merger</a> between the University of Adelaide and the University of South Australia is building momentum. If it proceeds, it will be the first major merger between Australian higher education institutions in recent times.</p>
<p>Australian higher education is no stranger to mergers. Starting in the late 1980s, 89 institutions in Australia offering higher education courses <a href="https://web.archive.org/web/20061110170536/http://www.avcc.edu.au/documents/universities/AustralianHEMerges-Amalgamations.pdf">consolidated to a much smaller number</a> within a few years. Eventually, these become the 39 Australian universities we know now. </p>
<p>These mergers provide some insight into how combining two institutions can be successful. Aligning the cultures and expectations of the merging institutions counts, as does good leadership.</p>
<h2>The advantage of scale</h2>
<p>The University of Adelaide and University of South Australia are both very successful institutions. Adelaide is one of the original Australian universities, with only the University of Sydney and Melbourne coming before. UniSA was itself <a href="https://www.unisa.edu.au/PageFiles/39119/101%20Things%20about%20UniSA%20(web).pdf">created by combining campuses</a> of two institutions in the early 1990s. </p>
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<p>Why propose to merge two successful universities now? The <a href="http://apo.org.au/system/files/186116/apo-nid186116-984416.pdf">discussion paper</a> released by the two universities sets out a number of likely benefits from the merger. </p>
<p>As a newly reconstituted university, it emphasises, the strengths of each institution can provide opportunities in teaching and research, which can be hard to achieve through collaboration rather than merger. </p>
<p>The University of Adelaide is older, with a larger budget, fewer students and more staff than UniSA. UniSA is newer, but has been attracting students and research funding at a steady rate over the past few years.</p>
<p>They will be more than the sum of their parts, the argument goes. Central to this is that the new university will be an “internationally oriented university of scale”, able to attract more international students and move up in university rankings.</p>
<p>Scale is one important aspiration here. A number of leading universities worldwide, such as the University of Toronto (with just over <a href="https://www.utoronto.ca/about-u-of-t/quick-facts">90,000</a> enrolled students), are large teaching universities, while other leading universities have large budgets and armies of research academics. Scale is seen to provide opportunities and was one of the key reasons for the consolidation of institutions in the 1980s.</p>
<h2>So we’ve been here before?</h2>
<p>Not quite. The frenzy of mergers came about in 1988 as the federal government <a href="http://www.voced.edu.au/content/ngv%3A9695">announced</a> a new structure for the higher education system. This system focused on one type of institution – a university – in what was to be called the <a href="https://www.mup.com.au/books/no-end-of-a-lesson-paperback-softback">Unified National System</a>.</p>
<p>At that time, several types of institution were delivering higher education, including 46 non-doctoral-granting ones called <a href="https://en.wikipedia.org/wiki/College_of_Advanced_Education">Colleges of Advanced Education</a>. </p>
<p>In restructuring Australian higher education, the education minister at the time, John Dawkins, pushed for larger institutions (all of which chose to call themselves universities) using student load to set minimum size. The minimum was set at 2,000 full-time equivalent students. Some 5,000 were required for teaching and some research activity and 8,000 for “relatively comprehensive” research.</p>
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<a href="https://theconversation.com/australia-doesnt-have-too-many-universities-heres-why-88386">Australia doesn't have too many universities. Here's why</a>
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<p>These mergers were all said to be voluntary, but there were very strong incentives for them to occur. Several of the Colleges of Advanced Education had started offering doctoral training and sought university status. Some smaller institutions were less enthusiastic but had few choices but to find a partner if they were to meet the federal government’s plan.</p>
<h2>Mergers</h2>
<p>By and large, merging many different institutions in Australian higher education in the 1990s has been successful. If the proposed merger between The University of Adelaide and University of South Australia comes to pass, it will be different from those early mergers, not least because none were between two existing universities. But they still provide insight.</p>
<p>The full process of the Dawkins mergers took nearly a decade. While there were many successes, there were also notable failures. These failures caused ongoing disruption for students and academics. </p>
<p>One example is the <a href="https://www.une.edu.au/about-une/a-world-of-learning/the-une-story">Network University of New England</a>, which existed from July 1989 until December 1993. It incorporated the University of New England, Armidale College of Advanced Education, the Northern Rivers College of Advanced Education and the Orange Agricultural College.</p>
<p>These smaller institutions came together in the Network University to achieve the kind of scale Dawkins indicated was necessary, but it was a troubled union from the outset. The devolved structure chosen for the Network University enabled some members of the new university to persist with campaigns for independence. </p>
<p>For example, one campus refused to use another’s distance education centre and established its own instead. This undermined the logic of achieving better performance and efficiency while reducing duplication. The pursuit of local advantages by some institutional leaders became unsustainable and the Network University was eventually dissolved.</p>
<h2>Some lessons from the mergers in the 1980s</h2>
<p>Scale can have benefits, but as the story of the Network University of New England and others show, care is needed in forming a new university, to ensure it doesn’t become different campuses and cultures adopting a single nameplate.</p>
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Read more:
<a href="https://theconversation.com/do-mergers-make-for-better-councils-the-evidence-is-against-bigger-is-better-for-local-government-56813">Do mergers make for better councils? The evidence is against 'bigger is better' for local government</a>
</strong>
</em>
</p>
<hr>
<p>Both UniSA and the University of Adelaide have strong programs in many shared areas.</p>
<p>A lesson from earlier mergers is that a challenge can come in ensuring a unified culture emerges – one that respects and celebrates all staff and students, and is sensitive to the different histories of institutions while providing a shared vision for the future. Here, good leadership can align aspirations with the expectations, and match these with a transition that brings staff, students and community along at each stage. This is an ongoing task for any new univerity’s vice-chancellor.</p><img src="https://counter.theconversation.com/content/101454/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Gwilym Croucher does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While creating a bigger university is an important incentive for this proposed merger, good leadership and a shared vision are needed to make it a success.Gwilym Croucher, Senior Lecturer, Melbourne Centre for the Study of Higher Education, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1009512018-08-07T19:42:19Z2018-08-07T19:42:19ZWhat impacts do takeover defences have on shareholders?<p>It’s becoming the year of defence in Australian mergers and acquisition, with varying and fascinating defence tactics on display over the past six months.</p>
<p>Perhaps the most brazen defence this year in Australia was Healthscope’s <a href="https://www.theaustralian.com.au/business/companies/analysts-cautious-over-healthscope-outlook-after-rejected-takeover-bid/news-story/b28f8714943f33ce130955f7fab992ad">rejection of two rival bidders</a> while simultaneously announcing an earnings downgrade. Not only does this defy <a href="https://www.wiley.com/en-us/Applied+Mergers+and+Acquisitions-p-9780471395348">the maxim that the best defence is a high share price</a> but classic defence tactics also hold that rival bidders should be leveraged off each other to extract a higher offer.</p>
<p>In May, Brookfield lodged an A$6 billion (including debt) competing takeover proposal at A$2.50. This followed an $A2.36 proposal in April from a consortium that included BGH and AustralianSuper. Instead of pursuing the proposed takeovers, Healthscope launched a strategic review to explore selling its property portfolio. That prompted suggestions the move was more about creating a stalking horse defence.</p>
<p>Healthscope’s share price has partially held, trading at A$2.19 compared to a high of $A2.58 after the proposals were made public. It remains well above its $A2 level shortly before the first takeover proposal.</p>
<p>Santos is another storied defence saga involving protracted negotiations with Harbour Energy, including two improved offers over a dramatic May weekend. In all, the defence persuaded Harbour to improve its proposals five times since the A$4.55 it first offered in August 2017. </p>
<p>Harbour ended up offering A$7 if Santos agreed to hedge part of its oil-linked production. Santos still rejected the offer in a marginal decision. The <a href="https://www.fool.com.au/2018/07/19/santos-ltd-asxsto-just-flagged-a-return-to-sustainable-dividend-payments/">rise in the oil price aided Santos’s defence</a>, but its board is now exposed to shareholder pressure should the oil price fall sharply. </p>
<p>Harbour was left frustrated at what it considers the stop-go messaging of Santos, leading to the <a href="https://www.theaustralian.com.au/business/dataroom/santos-must-explain-why-it-rejected-harbour-bid/news-story/48a1271776cdeb6258f685cfb8c2b506">belief that Santos did not want to sell at any reasonable price</a>. Santos believes its existing strategy offers better shareholder value, the premium paid for gaining control of the company is inadequate and the transaction structure is too complex, risky and uncertain. Santos now trades around A$6.38.</p>
<h2>Holding out for better offers</h2>
<p>Aside from their bidders, which bought stakes in Healthscope and Santos to shore up their positions, both companies have wide shareholder registers without any anchor shareholder.</p>
<p>This is in contrast to APN Outdoor, Gateway and Mineral Deposits where a few large and decisive shareholders were clear that their boards should reject initial offers this year from <a href="https://www.afr.com/business/media-and-marketing/advertising/shareholders-say-apn-outdoor-worth-more-than-jcdecauxs-takeover-bid-20180621-h11obs">JCDecaux</a>, <a href="https://www.theaustralian.com.au/business/dataroom/hometown-eyes-gateway-as-brookfield-exits-race/news-story/130320707e8bb82bc581f3483407cfd1">Hometown</a> and <a href="https://www.afr.com/business/mining/mineral-deposits-labels-eramet-bid-inadequate-20180509-h0zvk6">Eramet</a> respectively. All three bidders improved their offers. </p>
<p>This led to a new board recommendation from APN whose defence was complicated by its <a href="https://mumbrella.com.au/apn-outdoor-ups-bid-for-adshel-to-540-million-524969">offer to buy Adshel</a>, JCDecaux’s biggest rival in Australia’s street furniture advertising segment, from HT&E. Once APN was <a href="https://www.smh.com.au/business/companies/oohmedia-boss-defends-570-million-spend-on-adshel-as-fair-value-20180625-p4znm9.html">outbid for Adshel</a> it <a href="https://www.smh.com.au/business/companies/jcdecaux-to-acquire-apn-outdoor-for-1-12-billion-20180626-p4znq0.html">negotiated improved terms from JCDecaux</a>.</p>
<p>Mineral Deposits waited for acceptances to approach 50% before <a href="https://www.reuters.com/article/us-mdl-m-a-eramet/australias-mineral-deposits-recommends-takeover-offer-as-eramet-builds-up-stake-idUSKBN1K014Z">changing its recommendation to accept</a>. This was an unusual switch for a defence board to make so late in the process. More typically a target board advises shareholders to take no action. It may suggest an offer is opportunistic or undervalued without recommending shareholders reject an offer. </p>
<p>Rather than being persuaded by a sufficiently attractive offer, Mineral Deposits was boxed in by two factors. The offer price was declared final at an early stage and shareholders were unwilling to remain invested in an Eramet-controlled company with <a href="https://www.investopedia.com/terms/d/dilution.asp">dilution</a> from likely capital-raising.</p>
<p>In the case of Gateway, disgruntled shareholders pushed the board to find a suitor. The company ended up with <a href="https://www.theaustralian.com.au/business/property/bidding-war-looms-for-gateway-as-brookfield-lobs-700m-offer/news-story/bcecd77ff78a1a4213252fb6ec67f06e">two competing offers</a> that it says it is considering. Other parties are <a href="https://www.theaustralian.com.au/business/dataroom/gic-mulls-rival-gateway-bid/news-story/c7355a5bb7712c0fcde559242302a1b8">reportedly weighing up making a bid</a>.</p>
<p>Another defence board that faced a difficult decision is Sirtex Medical. One day before a scheduled scheme meeting to approve a board-recommended A$28 offer from Varian Medical Systems, Sirtex received a A$33.60 proposal from Chinese asset manager CDH Investments. </p>
<p>Reflecting the fact that price is not the sole factor in defence, Sirtex had to weigh up complex regulatory approvals (particularly from the Committee on Foreign Investment in the United States), timing and other risks. The inclusion in CDH’s proposal of a A$200 million reverse break fee (if the bidder breaches or is unable to fulfil the acquisition agreement), Australia’s largest reverse break fee, reflects the risks Sirtex felt.</p>
<p>None of these defence tactics involved poison pills – making the target’s shares prohibitively expensive or the target unattractive to a bidder. The Australian <a href="http://www.takeovers.gov.au/content/DisplayDoc.aspx?doc=panel_process/glossary.htm">Takeovers Panel notes</a> the “poison pill” term is loosely used in Australia to refer to a defence triggered by a hostile bid that makes a target unattractive, such as pre-emptive rights or share top-up rights.</p>
<h2>So what are the impacts on shareholders?</h2>
<p>As Harvard Business School professor <a href="http://www.nber.org/chapters/c5821.pdf">Richard Ruback observed</a>:</p>
<blockquote>
<p>I wish I could conclude that takeover defences are generally good or bad for stockholders, but the answer is not that simple. </p>
</blockquote>
<p>Even where offers were improved, it depends which stakeholders are referenced (target or bidder shareholders, employees, suppliers, customers, management, competitors, among a few) and at which point one compares.</p>
<p>Ruback concluded that:</p>
<ul>
<li>defences that give managers power to veto hostile takeovers seem to be harmful</li>
<li>defences that destroy assets are probably bad</li>
<li>defences that neither give managers veto power nor destroy assets are probably not harmful.</li>
</ul><img src="https://counter.theconversation.com/content/100951/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon Segal is Editorial Consultant at Dealreporter </span></em></p>Australian companies have been employing many and varied takeover defences this year, including some that defy convention.Simon Segal, PhD research candidate, Business, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/896482018-01-10T11:40:22Z2018-01-10T11:40:22ZDefanged regulations have big media licking their chops<figure><img src="https://images.theconversation.com/files/201405/original/file-20180109-36009-qhta6p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Consolidation is happening at a rapid pace. But who will bear the brunt of the costs?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/businessman-suit-tv-instead-head-keeping-756496138?src=pHgQ7avrqq46SC82CSqcUQ-2-12">Khakimullin Aleksandr/Shutterstock.com</a></span></figcaption></figure><p>The year 2017 ended with a flurry of news affecting all aspects of the media industry. A shift in net neutrality policy and Disney’s <a href="https://theconversation.com/disneys-potential-21st-century-fox-merger-continues-troubling-trend-of-media-consolidation-89229">planned purchase</a> of several Fox assets capped a year that also witnessed the pending merger between Sinclair Broadcast Group and Tribune Media.</p>
<p>As someone who teaches and <a href="https://mitpress.mit.edu/books/we-now-disrupt-broadcast">writes</a> about the media industry, I’ve been following these developments closely. Whether you’re simply concerned about your cable and internet bill, or you’re wondering how the elimination of net neutrality will influence access to your favorite websites, here are some key stories and developments you should tune into in 2018.</p>
<h2>Buckle up for ‘fast lanes’</h2>
<p><a href="https://theconversation.com/with-fccs-net-neutrality-ruling-the-us-could-lose-its-lead-in-online-consumer-protection-88816">The repeal of net neutrality</a> – the rules that prevent internet service providers from charging websites to secure preferential treatment – hasn’t gone into effect just yet, and legal challenges are in the works. But if the rollback goes through, as it’s expected to do, it will likely affect companies and consumers in a couple of ways.</p>
<p>First, the business models of internet-reliant services such as Netflix and Spotify have always assumed that they would have free, unfettered use of the internet. They are among the first places that ISPs could target with fees, and these sites would feel compelled to fork over the money in order to reach consumers at the fastest speeds. At the same time, to offset these new costs, these internet-reliant services will likely pass these costs on to their customers. </p>
<p>Meanwhile, if paid “<a href="https://www.wired.com/story/fcc-prepares-to-unveil-plan-to-gut-net-neutrality/">fast lanes</a>” become standard practice, consumers will also notice that accessing sites that don’t or can’t pay – such as government, education, libraries and other non-commercial sites – might seem slower or more difficult to use.</p>
<p>Also, expect to see internet service companies leverage the content they’ve purchased to encourage more subscribers. Companies that own content – whether it’s TV channels or film franchises – will be able charge lower prices than those that license it. (This is at the heart of the AT&T-Time Warner merger discussed below.) For example, if AT&T succeeds in buying Time Warner – which includes HBO – it will likely offer HBO to AT&T subscribers at rates well below what their competitors like Comcast will charge, because these competitors must pay AT&T before they can offer HBO’s content.</p>
<h2>Investments and mergers galore</h2>
<p>Though we’re in the midst of an unpredictable regulatory environment, it seems likely that <a href="http://www.multichannel.com/news/sports/disney-pulls-fox-trigger/417071">Disney’s purchase of Fox assets</a> will proceed. </p>
<p>This won’t immediately bring big changes for consumers. As a content company, Disney’s primary goal is to maintain and accumulate content assets: television series, films and brands like Star Wars, Marvel and DC. The more it owns, the better positioned it is to negotiate with companies such as Comcast and AT&T that make most of their money from distributing content (via internet, phone, cable service), but are also increasingly purchasing content of their own. </p>
<p>Companies built on owning content don’t want to be left behind, so their goal is to be able to possess content so valuable that consumers demand that all distributors offer it. Just as <a href="https://theconversation.com/politics-dont-explain-espns-subscriber-decline-76843">Disney has long used</a> used the popularity of ESPN to secure access for less popular channels like ESPN Classics or Disney XD, the more essential content Disney owns, the more leverage it has to charge high fees and ensure distribution for content that’s less in demand. </p>
<p>The mergers likely to have a greater impact on consumers are the Sinclair-Tribune and AT&T-Time Warner mergers. <a href="http://www.multichannel.com/news/transactions/discovery-buy-scripps-networks-146-billion/414315">Sinclair and Tribune</a> aren’t household names, but they do own several local television stations. Sinclair already owns the most television stations in the U.S. – <a href="http://sbgi.net">193 stations in 89 markets</a> that reach 40 percent of American households. Buying Tribune’s stations would enable it to reach 72 percent of American households, even though current rules cap national reach at 40 percent. </p>
<p>The Federal Communications Commission – with its current makeup geared toward deregulation – has <a href="http://variety.com/2017/tv/news/fcc-national-ownership-cap-sinclair-tribune-1202620605/">signaled its intention</a> to revise ownership rules to enable the merger to proceed. This scale of broadcast ownership is unprecedented in the United States and reminiscent of the late 1990s, when limits on national radio station ownership were eliminated and <a href="https://apps.fcc.gov/edocs_public/attachmatch/DA-07-3470A6.pdf">massive consolidation occurred</a>. </p>
<p>Many have <a href="https://www.salon.com/2001/06/28/telecom_dereg/">since decried</a> this shift in radio ownership rules. The consolidation led to local job losses, and a recent <a href="https://arstechnica.com/information-technology/2017/10/fcc-rule-change-could-help-tv-and-radio-stations-abandon-local-communities/">change in rules</a> allows conglomerates to operate without local studios. Sinclair has already been criticized for <a href="https://www.nytimes.com/2017/05/.../sinclair-broadcast-komo-conservative-media.html">forcing all its stations</a> to air the same editorials. This is contrary to broadcast policy that has long prioritized upholding the right of local stations to deliver programming attuned to the interests of their audiences.</p>
<p>The AT&T-Time Warner merger has been in the news for over a year now. The Department of Justice <a href="https://www.washingtonpost.com/news/the-switch/wp/2017/11/20/the-justice-department-just-sued-att-to-block-its-85-billion-bid-for-time-warner/?utm_term=.3cbd72a2a731">announced plans</a> to sue to prevent the merger in November 2017 and the deal awaits court consideration. This merger deserves a closer look, because like <a href="https://www.reuters.com/article/us-comcast-nbc/comcast-completes-nbc-universal-merger-idUSTRE70S2WZ20110129?irpc=932">Comcast’s 2011 purchase of NBCUniversal</a>, it allows a distribution company (AT&T) to own content: Time Warner’s assets include HBO, CNN and the Turner networks. The Comcast merger was ultimately permitted, but it included a <a href="https://www.justice.gov/opa/pr/justice-department-allows-comcast-nbcu-joint-venture-proceed-conditions">number of provisions</a> to maintain a competitive marketplace. </p>
<p>Although much has been made of <a href="https://www.salon.com/2017/11/24/is-trump-blocking-a-major-merger-because-of-his-cnn-vendetta_partner/">President Trump’s hostility towards CNN</a> as a possible reason for the Department of Justice lawsuit, the potential anti-competitive actions AT&T could take as owner of Time Warner’s most lucrative asset – HBO – is a much better explanation. AT&T could refuse to allow competing services such as Comcast to offer HBO, or make it far more expensive to consumers that subscribe to a different ISP. </p>
<p>Over the next year, we’ll see media conglomerates continue to bid for assets and push to roll back rules in an effort to accumulate more power and profit. At the same time, ISPs – many of which already operate as local <a href="https://arstechnica.com/information-technology/2016/08/us-broadband-still-no-isp-choice-for-many-especially-at-higher-speeds/">monopolies or with limited competition</a> – now have permission to delegate access and raise fees. </p>
<p>If history is a guide, consumers will be the big losers.</p><img src="https://counter.theconversation.com/content/89648/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amanda Lotz does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the coming year, media companies will be adjusting to a new reality – one that ultimately leaves consumers with fewer choices.Amanda Lotz, Fellow, Peabody Media Center; Professor of Media Studies, University of MichiganLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/892292017-12-21T11:20:39Z2017-12-21T11:20:39ZDisney’s potential 21st Century Fox merger continues troubling trend of media consolidation<figure><img src="https://images.theconversation.com/files/200233/original/file-20171220-4965-e3699u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Do we really want one conglomerate to control so much of the media landscape?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/hollywood-usa-15-december-2017-idea-775614550?src=EFTQX1RbYfyFA6r92sWEYA-1-36">Sergsta/Shutterstock.com</a></span></figcaption></figure><p>In the U.S., <a href="http://www.pbs.org/independentlens/democracyondeadline/mediaownership.html">only a handful</a> of media companies control what children and adults watch and read. </p>
<p>Now that number could get even smaller.</p>
<p>The proposed <a href="https://www.nytimes.com/2017/12/14/business/dealbook/disney-fox-deal.html?_r=0">US$52.4 billion merger</a> of Disney and 21st Century Fox would merge the first and third largest film companies in the world. Marvel Studios, Lucasfilm, Pixar, Searchlight, 20th Century Fox and Big Sky would all be under the same umbrella. Disney would also acquire control of TV channels like FX and National Geographic, adding to a portfolio that already includes ABC and ESPN. It would have <a href="http://variety.com/2017/digital/news/hulu-disney-fox-deal-future-tv-streaming-1202640711/">majority stake in Hulu</a>, which would position the streaming service to take on Netflix head-to-head in what many <a href="http://variety.com/2017/digital/news/hulu-disney-fox-deal-future-tv-streaming-1202640711/">industry insiders expect</a> will be a battle for market control. </p>
<p>As someone who studies global media power, I find the potential Disney-Fox merger troubling not just because one corporation will control production of narratives about popular culture and politics on television, film and streaming services, but because it will also create a media powerhouse worth so much that it could be as powerful as a state actor on the world stage.</p>
<h2>‘Weapons of mass distraction’</h2>
<p>For children and adults, media isn’t just entertainment. It is, in many ways, the tapestry of American life. </p>
<p>We grow up in front of the television screen, the silver screen and the computer screen, spending in the United States an <a href="https://www.statista.com/statistics/276683/media-use-in-the-us/">astounding 12 hours daily</a> engaged with media. It shapes our attitudes and beliefs, our likes and dislikes, our wants and desires and even our basic definitions of what it means to be normal. </p>
<p><a href="http://onlinelibrary.wiley.com/doi/10.1111/josi.12094/full">Studies have found</a> that Americans’ attitudes about everything from terrorism to <a href="http://sophia.stkate.edu/cgi/viewcontent.cgi?article=1478&context=msw_papers">race relations</a> are largely formed by what they watch and hear. For example, a <a href="http://journals.sagepub.com/doi/abs/10.1177/0093650215619214">2015 study</a> was able to show that negative stereotyping of Muslims in news reports led to increased support for military action against Muslim countries. </p>
<p>Meanwhile, fictional <a href="http://www.latimes.com/entertainment/la-et-hollywood-values-updates-how-hollywood-s-muslim-portrayals-1483650479-htmlstory.html">television shows</a> like “Homeland,” “The Americans” and “24” routinely cast foreigners as villains, making it easier for audiences to demonize citizens from other countries and immigrants. These attitudes have been shown to have <a href="https://shorensteincenter.org/wp-content/uploads/2012/03/american_media_and_race_relations_2001.pdf">a real effect on public policy</a>.</p>
<p>Advertising to children is a $17 billion industry. <a href="http://www.commercialfreechildhood.org/resource/marketing-children-overview">According to the Campaign for a Commercial Free Childhood</a>, children’s ads have all been connected to “eating disorders, precocious sexuality, youth violence and family stress,” while contributing to “children’s diminished capability to play creatively.” </p>
<p>As is the case with all businesses, the bottom line for media companies trumps <a href="https://www.cbsnews.com/news/does-medias-profit-quest-harm-democracy/">any consideration of the public good</a>. Studios ultimately produce shows that attract the most viewers and sell the most ads and movie tickets: cheaply produced reality television, celebrity gossip, political drama, and films packed with action and special effects. </p>
<p>The result is a media system that has become what media scholar Marty Kaplan <a href="https://www.alternet.org/media/bill-moyers-weapons-mass-distraction-why-media-most-americans-consume-harmful-public-health">calls</a> a “weapon of mass distraction.”</p>
<h2>A consolidation frenzy</h2>
<p>Media control, then, has powerful implications in our society: The stories that appear influence how citizens make sense of the world. </p>
<p>When journalist and media critic Ben Bagdikian wrote his 1983 book “<a href="http://hope.journ.wwu.edu/tpilgrim/j190/Bagnewintro1.html">The Media Monopoly</a>,” 50 companies controlled a majority of what Americans watched, read and heard. </p>
<p>Bagdikian predicted that further media consolidation of ownership would weaken coverage of lobbying, environmental issues, war, labor fights and corporate wrongdoing. </p>
<p>By the time he wrote <a href="https://www.amazon.com/New-Media-Monopoly-Completely-Chapters/dp/0807061875">his sequel</a> in 2004, Bagdikian’s predictions had largely come true. But even he didn’t think that 90 percent of American media outlets would fall under the control of just five big media corporations. He wrote that these conglomerates operated as a kind of cartel that controlled our “most important institutions,” from newspapers to film. </p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/200231/original/file-20171220-4995-lxnwoh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/200231/original/file-20171220-4995-lxnwoh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=740&fit=crop&dpr=1 600w, https://images.theconversation.com/files/200231/original/file-20171220-4995-lxnwoh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=740&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/200231/original/file-20171220-4995-lxnwoh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=740&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/200231/original/file-20171220-4995-lxnwoh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=929&fit=crop&dpr=1 754w, https://images.theconversation.com/files/200231/original/file-20171220-4995-lxnwoh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=929&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/200231/original/file-20171220-4995-lxnwoh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=929&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Should the merger go through, Disney will own a range of popular franchises, from Star Wars to X-Men.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/dannypigart/8183457611/in/photostream/">Danny PiG</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Disney, of course, was one of the five media conglomerates Bagdikian named. Another was Rupert Murdoch’s News Corp., which, at the time, included parts of what would become 21st Century Fox. </p>
<h2>Money talks</h2>
<p>If the $52 billion price tag sounds big, consider this: <a href="http://deadline.com/2017/12/disney-fox-merger-deal-done-hollywood-media-1202219012/">The payoff will be massive</a>. The hybrid corporation control will give Disney <a href="https://www.recode.net/2017/12/14/16775984/disney-fox-acquisition-40-percent-box-office-hits-2017">a third of all</a> domestic box office revenue, which, in 2017, amounted to about $3 billion.</p>
<p>Because the deal <a href="https://www.vox.com/culture/2017/12/14/16764472/disney-fox-deal-merger">further shrinks</a> the dwindling number of voices controlling media, Disney’s merger with Fox has a long way to go to pass Department of Justice muster. <a href="https://www.justice.gov/atr/file/800691/download">Three major anti-trust laws</a> are supposed to guide Department of Justice principles related to mergers and the resulting market conditions left in their wake. </p>
<p>But I expect we’ll see what’s happened in the past when regulators have attempted to control the ownership structure of other media conglomerates: <a href="http://onlinelibrary.wiley.com/doi/10.1111/cccr.12105/abstract">a massive lobbying campaign</a>. The $72 billion deal that merged Comcast and AT&T Broadband in 2001 was given the go-ahead. A decade later, Comcast bought NBC Universal <a href="https://www.reuters.com/article/us-comcast-nbc/comcast-completes-nbc-universal-merger-idUSTRE70S2WZ20110129">for $30 billion</a>, a merger that passed both FCC and Department of Justice scrutiny after being called a “<a href="http://www.rollcall.com/issues/55_65/-41179-1.html">lobbying frenzy</a>” by Roll Call. </p>
<p>Disney already <a href="https://www.opensecrets.org/lobby/clientsum.php?id=d000000128">spends millions of dollars</a> annually lobbying Congress, the U.S. State Department, the Federal Communications Commission and the <a href="https://www.opensecrets.org/lobby/clientagns.php?id=D000000128&year=2016">Office of the U.S. Trade Representative</a>, the federal agency responsible for <a href="https://www.nytimes.com/2017/07/13/business/media/hollywood-china-box-office.html">negotiating with China</a> to alter how it accepts and runs Hollywood films. </p>
<p>I <a href="https://www.youtube.com/watch?v=5hAjZJ72Jew">also predict</a> this merger will strengthen Disney’s bargaining power with China, which <a href="https://www.forbes.com/sites/robcain/2017/11/12/why-disney-rejected-chinas-plum-release-date-offer-for-star-wars-the-last-jedi/#111817837d24">controls film’s release</a> dates. China, the world’s <a href="https://www.wsj.com/articles/capital-control-policy-puts-brakes-on-chinese-investment-in-hollywood-1487965450">second-largest</a> film market, <a href="https://www.cnbc.com/2017/08/03/hollywood-blackout-china-is-giving-domestically-made-films-a-boost.html">typically blacks out</a> American films during crucial summer blockbuster months to focus on domestic films, and it allows <a href="https://www.cnbc.com/2017/08/03/hollywood-blackout-china-is-giving-domestically-made-films-a-boost.html">just 34</a> foreign films to be released each year. Yet some believe <a href="http://deadline.com/2017/12/chinese-film-tv-industry-86-3-billion-dollar-business-mpaa-china-report-1202227826/">China will be</a> more willing to negotiate with the mega-company that will emerge after the merger because of its sheer financial clout. </p>
<p>The merger, of course, will also influence what information reaches Americans, including content citizens need to govern themselves in a democracy. </p>
<p>Disney <a href="https://fair.org/interlocking-directorates/2870/#disney">shares members</a> of its board of directors with companies like Anheuser-Busch, Chase Manhattan, Coca-Cola, Unilever and Pfizer. Citizens should ask: How might this influence the information disseminated about food, banking regulations, consumer products and pharmaceuticals? </p>
<p>And consider how a stronger China-U.S. media alliance could impact U.S. films, television and news. Would American media companies be hesitant to cover human rights violations, factory conditions or pollution in Asia for fear that they would anger the Chinese government and, therefore, lose bargaining power and access to audiences?</p>
<p>What gets left out of coverage is sometimes as important as what makes it in.</p>
<p>If just four companies get to decide, we should all be concerned.</p><img src="https://counter.theconversation.com/content/89229/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Margot Susca is a member of the Online News Association. </span></em></p>Disney’s veneer of innocence shouldn’t distract people from recognizing the danger of giving one conglomerate the power to control so much information.Margot Susca, Professorial Lecturer, American University School of CommunicationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/745052017-03-15T11:52:06Z2017-03-15T11:52:06ZFund management mega merger shows the easyJet effect is hitting the City<figure><img src="https://images.theconversation.com/files/160812/original/image-20170314-13485-uf51yy.jpg?ixlib=rb-1.1.0&rect=327%2C191%2C4860%2C3045&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/city-london-uk-225979603?src=0KvkgrfUYYiyRn2YivmoBQ-1-14">TTstudio/Shutterstock</a></span></figcaption></figure><p>Some of the financial sector’s biggest firms are feeling the pinch. The rise of low-cost investment products which simply track markets is forcing some dramatic moves and the <a href="https://www.theguardian.com/business/nils-pratley-on-finance/2017/mar/06/standard-life-aberdeen-merger-us-scottish">proposed £11 billion merger</a> of Standard Life and Aberdeen Asset Management is only the latest evidence of the shift. You see, even the City is not immune to the basic laws of strategy and fund managers are failing to add enough value to justify the cost of their services.</p>
<p>You might think the investment industry is closed off to most people. But if you have a company pension it is likely to be invested with one or more of the big fund management firms. And one of the choices the people managing our pensions have to make is whether to <a href="http://www.which.co.uk/money/investing/types-of-investment/guides/unit-trusts-and-oeics/active-or-passive-investment">choose active or passive products</a>.</p>
<p>In the case of an equity fund, an active product will have a team of well-paid managers who research companies and pick stocks in the hope of outperforming a benchmark. For UK stocks, it’s often <a href="https://markets.ft.com/data/indices/tearsheet/summary?s=FTSE:FSI">the FTSE 100 index</a> of top companies. A passive fund, meanwhile, will simply try to mimic the FTSE 100’s performance by making sure its holdings match that index as closely as possible.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/160815/original/image-20170314-10720-1ju0bhk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/160815/original/image-20170314-10720-1ju0bhk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/160815/original/image-20170314-10720-1ju0bhk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/160815/original/image-20170314-10720-1ju0bhk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/160815/original/image-20170314-10720-1ju0bhk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/160815/original/image-20170314-10720-1ju0bhk.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/160815/original/image-20170314-10720-1ju0bhk.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/160815/original/image-20170314-10720-1ju0bhk.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Green light for passive funds?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/stock-market-chartstock-data-on-led-598541738?src=r8p5HL-Ex9YG5SI0ZdPyDA-1-29">TJmedia/Shutterstock</a></span>
</figcaption>
</figure>
<p>The choice is simple then. Pay a big fee to managers who will try to beat the index, but who might fail miserably, or pay a small fee for a product that essentially guarantees you will only very slightly underperform the index (you have to account for the costs). The problem for the investment industry is that people are now opting for the latter in droves. The <a href="http://www.morningstar.co.uk/IntroPage.aspx?site=uk&backurl=http%3A%2F%2Fwww.morningstar.co.uk%2Fuk%2Fnews%2F156449%2Fwhy-passive-funds-are-growing-in-popularity.aspx">growing diversity and popularity of tracker funds</a>, alongside evidence to support their relative performance, has reached a tipping point which is prompting major changes.</p>
<h2>Cost management</h2>
<p>As profits come under threat, more firms will doubtless follow Standard Life and Aberdeen, whilst others have already jumped. UK firm Henderson and US group Janus Capital <a href="http://www.telegraph.co.uk/business/2016/10/03/henderson-and-janus-to-combine-in-merger-of-equals/">announced their merger</a> last year, as did <a href="http://www.telegraph.co.uk/business/2016/10/03/henderson-and-janus-to-combine-in-merger-of-equals/">France’s Amundi and Italy’s Pioneer</a> as they sought to rationalise product ranges and cut administration costs. Standard Life and Aberdeen are keen not to announce cost savings targets, but have <a href="http://www.thisismoney.co.uk/money/markets/article-4287414/Jobs-cull-fear-11bn-Standard-Life-Aberdeen-merger.html">dismissed some estimates</a> that 1,000 Scottish jobs will go to save £200m. It is likely that some front line fund managers will end up losing their jobs, too, as funds are merged.</p>
<p>The combined firm will have about £660 billion under management but may struggle to hang on to it. Mergers tend to make people nervous and there are likely to be some withdrawals of money. The UK industry’s biggest player, <a href="http://www.lgim.com/global/">Legal and General</a>, has £900 billion under management, much of it in passive tracker funds, and is likely to be one of the main beneficiaries. Those investor nerves may be <a href="https://www.ft.com/content/960b3a28-028e-11e7-ace0-1ce02ef0def9">sharpened by concerns</a> over the co-CEO appointments in the Standard Life/Aberdeen deal.</p>
<p>The attempt to incorporate both Standard Life’s Keith Skeoch and Aberdeen’s Martin Gilbert into the plans is likely to result in a lack of leadership and infighting from respective factions. Such “mergers of equals” rarely do well. Take the infamous <a href="http://mba.tuck.dartmouth.edu/pdf/2002-1-0071.pdf">Chrysler/Daimler merger in 1995</a> and more recently the 2015 merger of cement giants <a href="https://www.bloomberg.com/gadfly/articles/2016-07-13/lafargeholcim-50-billion-cement-merger-gives-no-cause-to-celebrate">Lafarge and Holcim</a>. Success can come when one party begins to assert control, but that can take time. </p>
<p>This industry trend is a worldwide phenomenon. Research suggests that at least four out of five active funds <a href="http://www.thisismoney.co.uk/money/diyinvesting/article-3504603/Nearly-three-four-active-fund-managers-UK-underperform-past-decade.html">fail to outperform trackers</a> once costs are factored in. Fund mergers and rationalisation will sweep world markets as firms wrestle with the changing dynamics. </p>
<p>In the UK, passive tracker funds <a href="http://www.theinvestmentassociation.org/investment-industry-information/research-and-publications/asset-management-survey/key-characteristics.html">have taken around 20%</a> of the near-£6 trillion market as of end-2015, which means they still have 80% to aim for. Only the best performing active funds will survive the challenge and be able to justify fees that tend to be five times greater than their passive rivals. </p>
<h2>Flighty customers</h2>
<p>We can find some clues to the future in similar events in other industries. The rise of “no frills” airlines like easyJet proved that the one-time ubiquitous full service airlines were charging for things passengers didn’t need or want. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/160922/original/image-20170315-5324-1d38uxy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/160922/original/image-20170315-5324-1d38uxy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/160922/original/image-20170315-5324-1d38uxy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/160922/original/image-20170315-5324-1d38uxy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/160922/original/image-20170315-5324-1d38uxy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/160922/original/image-20170315-5324-1d38uxy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/160922/original/image-20170315-5324-1d38uxy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/160922/original/image-20170315-5324-1d38uxy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Take-off for low-cost funds?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/stmaartenpiloot/7747622444/in/photolist-cNCAej-9ExXLG-8TTvdW-2cr5Sa-p4WkYy-8HE9Sc-8TTvQs-8TQr1V-5cLKPn-kQbN-qhEbs3-oMZtfG-8HkJEf-g9gjzF-8TQqR4-rnUQkX-5QQQLE-8Kw5Tq-eMa22o-qwnYM7-ajN3K-4A3uEq-afJHdW-p5n2PQ-g9Yy29-ekYyfp-oaimiX-sdwiXc-ekYr8H-r8BszE-dGvivk-9CXMd8-4FbfWa-GNJe3A-29PkSy-deP9py-kc5GeB-qCEBLw-sDbS2z-em56ZS-GNJb49-epk75x-5oUxsr-fGsgbE-GR12Xz-6umGgV-cpJfdQ-8HhBsn-9E3RTf-8TQrga">Pieter van Marion/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>More recently, German discount retailers Aldi and Lidl, with their smaller stores and ranges in lower cost parts of town, have demonstrated that many customers do not wish to pay for huge grocery product ranges and large expensive stores. The tipping point has arrived and prices <a href="http://www.telegraph.co.uk/business/2016/10/04/supermarket-price-war-drives-down-shop-prices-despite-the-fallin/">have permanently crashed</a> in the supermarket industry. Primark and other discounters are doing it in clothing retail. Ikea has changed the furniture industry. </p>
<p>We have just seen the start of this kind of revolutionary change for the industry which manages our pension savings and much else besides. Fund managers who cannot consistently outperform trackers should start considering their employment options now. And hopefully it won’t just be City bankers who benefit as a wave of mergers generates bumper fees – investors should end up getting a better deal, too.</p><img src="https://counter.theconversation.com/content/74505/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Colley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Expect more deals as low-cost options derail the investment industry’s business model.John Colley, Professor of Practice, Associate Dean, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/741002017-03-06T17:45:12Z2017-03-06T17:45:12ZPeugeot group’s past takeovers cast a shadow over Opel and Vauxhall<p>Pity the car maker trying to get coverage this week for a shiny new model or revised range at the <a href="http://www.gims.swiss/en/">Geneva International Motor Show</a>. The biggest topic of conversation there will not be anyone’s latest offering. Instead it will be the news that French group PSA – the maker of the Peugeot and Citroen brands – has <a href="http://www.bbc.co.uk/news/business-39175740">agreed to take over</a> General Motors’ Opel/Vauxhall group and its European finance operations for a combined €2.2 billion. </p>
<p>It is a deal that will fundamentally redraw the car-making map of Europe – again. You see, this isn’t the first time PSA has bought the loss-making European arm of a US auto maker, and if this acquisition plays out in the same way as the last one it could be grave news for plants in the UK.</p>
<p>In Coventry, in the West Midlands, locals still bitterly remember <a href="http://www.autocar.co.uk/car-news/industry/analysis-why-ryton-closing">PSA’s closure of its Ryton assembly plant in 2006</a> despite the effort put in by management and workforce to improve productivity and cut costs. </p>
<h2>Job cuts</h2>
<p>Ryton was one of the last remnants of the Rootes Group, a British car making giant in the middle of the 20th century which was <a href="http://www.rootes-chrysler.co.uk/">absorbed by the US Chrysler company in 1964</a>. For a while, the new arrangement worked well. But as Chrysler struggled to compete with Ford and General Motors in the 1970s US market, it starved its European arm of R&D cash. </p>
<p>Chrysler Europe’s myriad brands were rationalised and replaced by the Chrysler nameplate. Ultimately, the parent company divested itself of the European group for a nominal US$1 in 1978. The buyer was PSA Peugeot Citroën.</p>
<p>PSA rebadged European Chrysler cars under the Talbot brand, but did little to invest in new product. Instead it sold its Whitley engineering centre to Jaguar in 1986, and phased out Talbot models in favour of Peugeots. Ryton soldiered on until 2004 when PSA decided to build its 207 supermini elsewhere. <a href="http://www.telegraph.co.uk/finance/2937027/Midlands-fury-at-Ryton-closure.html">Ryton closed</a>, with a loss of 2,300 jobs. Some of those workers, and their families and friends, refuse to buy Peugeot cars to this day.</p>
<p>The closure of Ryton casts a long shadow over the new announcement. PSA will be looking to cut costs across its newly-expanded group and the two Vauxhall assembly plants in the UK, at Ellesmere Port on Merseyside and at Luton in Bedfordshire, will be under a renewed threat.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/159614/original/image-20170306-20767-utbpn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/159614/original/image-20170306-20767-utbpn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/159614/original/image-20170306-20767-utbpn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/159614/original/image-20170306-20767-utbpn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/159614/original/image-20170306-20767-utbpn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/159614/original/image-20170306-20767-utbpn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/159614/original/image-20170306-20767-utbpn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/159614/original/image-20170306-20767-utbpn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Playing for pride? There is a marketing risk in closures.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/dullhunk/7215097914/in/photolist-c2NuXJ-bZzgeU-Eag33d-EaAukz-F5EuFw-Eag3aY-Eag3jL-qwoWpB-8DBQb5-74Kw2G-74FCcg-74KvvQ-yghMcd-yvz6df-yxTGSH-yghyuu-yghNZG-LZjrbz-SqiDb">Duncan Hull/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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<h2>Top-sellers</h2>
<p>Then as now, UK plants are at risk not because they suffer from poor quality or high costs. Instead the problem is that <a href="https://www.ft.com/content/1c2b7178-cfc8-11da-80fb-0000779e2340">the UK’s more flexible labour laws</a> make it easier and cheaper to close a plant here than in France (where PSA’s biggest plants are located) or Germany (where most Opel production is based).</p>
<p>PSA may now find itself in the invidious position of being forced to close an efficient plant in the UK because the costs of closure – political, social and financial – are higher elsewhere.</p>
<p>But PSA cannot afford to ignore the UK completely. Britain is still the second biggest new car market in the EU, and Vauxhall is the second biggest brand in the UK. Its Corsa and Astra models were both top-ten best sellers in <a href="https://www.smmt.co.uk/2017/01/uk-new-car-market-achieves-record-2-69-million-registrations-in-2016-with-fifth-year-of-growth/">the UK car market in 2016</a>, and Vauxhall sold more than 250,000 cars for a 9.3% share of the market. By comparison PSA’s three brands sold just 161,000 cars between them in the UK last year.</p>
<p>And all may not be lost for the Opel/Vauxhall UK assembly plants in the UK. PSA aims to grow and <a href="https://theconversation.com/peugeot-bulked-up-with-gm-europe-could-leave-vw-looking-nervously-in-the-rear-view-mirror-73288">challenge Volkswagen</a> as the largest car maker in Europe and join <a href="http://www.telegraph.co.uk/business/2017/01/30/vw-overtakes-toyota-worlds-best-selling-car-maker/">the battle with Toyota</a> to be the largest in the world. To do that it will ultimately require greater capacity.</p>
<h2>Going in on a gamble</h2>
<p>PSA boss Carlos Tavares may be banking on the long-awaited recovery of the European car market. While the UK market is enjoying its best sales figures for years, Europe is yet to recover fully from the collapse in sales which accompanied the financial crisis in 2007. Tavares could be gambling that PSA will need to increase production as the European market recovers, which would dovetail with the extra capacity delivered by the Opel/Vauxhall acquisition.</p>
<p>Tavares will also see the UK plants as a hedge for PSA’s bets against the uncertainties of Brexit. Currency fluctuations and different trade tariffs between the eurozone and post-Brexit Britain could make a production facility outside the EU an advantage for PSA – if the UK plants can boost their proportion of local content from the current 25% or so. The recent news of a £10m investment by the Liberty House automotive group in a <a href="http://www.libertyhousegroup.com/news/liberty-unveils-10-million-automotive-centre-of-excellence/">new automotive centre of excellence in the Midlands</a> will give those plans a boost by encouraging growth in the UK supply chain.</p>
<p>Meanwhile, the disposal of Opel/Vauxhall may solve one immediate problem for GM but it also generates a series of new ones. For example, the D2XX platform that underpins Opel/Vauxhall’s Astra and other models is also the basis for US market models like the Buick Envision and Chevrolet Cruze, plus the Chinese market Buick Verano.</p>
<p>When the time comes to engineer replacements for those cars GM will no longer be able to use its European volume to spread the costs. Disposing of its European problem child could well make its US products more expensive. Ironically the solution to that might be for GM to do a platform-sharing deal – with PSA.</p><img src="https://counter.theconversation.com/content/74100/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Noakes is chairman of The Guild of Motoring Writers.</span></em></p>The takeover of GM’s European brands has historic parallels – and implications for both Europe and the US.Andrew Noakes, Senior Lecturer in Automotive Journalism, Coventry UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/732882017-02-21T14:08:45Z2017-02-21T14:08:45ZPeugeot bulked up with GM Europe could leave VW looking nervously in the rear-view mirror<p>Why is one of the world’s resurgent car companies trying to buy a troubled, loss-making division from one of its rivals? PSA Group, the maker of Peugeot, Citroen and DS brands, is in advanced talks to buy General Motors’ European arm. A deal would add the Opel and Vauxhall marques to its stable.</p>
<p>The deal poses a serious challenge to Volkswagen, still the king of the European car market. According to <a href="http://www.acea.be/uploads/news_documents/20170117_PRPC_1612_FINAL.PDF">figures from 2016</a>, Volkswagen had 24% of the sector, but last year’s <a href="https://theconversation.com/uk/topics/volkswagen-6915">emissions-cheating scandals</a> have made that dominance look fragile. A combined Peugeot and GM Europe would be snapping at its heels with a 17% European market share.</p>
<p>But of course there are risks involved. Most obvious is the fact that GM has for years <a href="https://www.bloomberg.com/news/articles/2017-02-14/after-gm-loses-billions-in-europe-barra-moves-to-dump-opel-unit">struggled to make a profit in Europe</a>, losing a total of US$15 billion in that market since 2000. It had previously looked at offloading the division during the global financial crisis, but <a href="https://www.theguardian.com/business/2009/nov/03/general-motors-opel-vauxhall-magna">eventually decided to hang on</a>.</p>
<p>However, GM Europe failed to meet its own breakeven target last year. It ended up posting an adjusted <a href="https://www.ft.com/content/6995207c-ed43-11e6-930f-061b01e23655">loss before interest and tax of US$300m</a> and warned that it faced a US$300-400m financial headwind in 2016, and again in 2017, after the <a href="http://www.bbc.co.uk/news/business-38634672">Brexit vote sparked a depreciation of sterling</a>.</p>
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<a href="https://images.theconversation.com/files/157702/original/image-20170221-18627-9dwi9i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/157702/original/image-20170221-18627-9dwi9i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/157702/original/image-20170221-18627-9dwi9i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/157702/original/image-20170221-18627-9dwi9i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/157702/original/image-20170221-18627-9dwi9i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/157702/original/image-20170221-18627-9dwi9i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/157702/original/image-20170221-18627-9dwi9i.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/157702/original/image-20170221-18627-9dwi9i.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Taking a pounding.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/one-pound-on-euro-banknote-528005983?src=Qfarl-AKBlas0R1pPg8qbg-2-6">0meer/Shutterstock</a></span>
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<h2>Model for success</h2>
<p>Peugeot might, however, have a solution to GM’s key European weakness. Much of the US firm’s troubles have been put down to its failure to get speedily to market a range of the trendy crossovers vehicles that have <a href="http://fortune.com/2013/09/13/how-crossovers-came-to-rule-the-auto-industry/">proven so popular with motorists</a>. Think of the Nissan Qashqai, Renault Kadjan or, indeed, the Peugeot 3008. GM, like Honda, has largely missed out this sector in Europe and watched as its <a href="http://www.cityam.com/259200/both-gms-opel-and-psa-lost-european-market-share-last-month">market share</a> has shrunk.</p>
<p>Interestingly, that product range failure is about to be sorted thanks in part to an existing tie up with PSA that will deliver a raft of new models. You see, GM and PSA already <a href="https://www.ft.com/content/ac3aa4ca-62f0-11e1-9245-00144feabdc0">share development</a> of sports utility vehicles and commercial vans, as part of an earlier attempt to cooperate. </p>
<p>PSA CEO Carlos Tavares will be hoping to bag a firm which is about to turn the corner. After all, his company has been there, <a href="http://europe.autonews.com/article/20150406/ANE/150409996/bold-moves-positive-results-highlight-tavares-1st-year-as-psa-boss">done that</a>.</p>
<p>The French group has done relatively well of late. It bounced back from its own “near death” experience in 2013-14 on the back of <a href="http://www.reuters.com/article/us-peugeot-sales-idUSBRE89N09F20121024">state support</a> and a shift away from its reliance on a <a href="https://www.ft.com/content/781b70cf-c373-3db1-ba00-e009a750f628">then-sluggish European market</a>. And its new range of crossover models have delivered decent operating margins – at 6.8% <a href="https://www.groupe-psa.com/en/newsroom/finance/resultats-semestriels-2016/">for the first half of 2016</a>). It has even appeared <a href="https://www.driving.co.uk/car-reviews/the-clarkson-review-2015-peugeot-308-gti/">to move on from the relentless mockery</a> of British TV car show Top Gear.</p>
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<p>And so Tavares may shrewdly see that GM Europe could stage a comeback quite quickly, just like PSA itself did, and spies the chance to pick up something on the cheap. </p>
<p>PSA firms sold 3.15m units last year. A deal with GM Europe would see that jump to 4.35m. That’s still less than half the size of Toyota or VW, which <a href="http://www.telegraph.co.uk/business/2017/01/30/vw-overtakes-toyota-worlds-best-selling-car-maker/">sell around 10m units</a> globally a year. Like <a href="https://www.bloomberg.com/news/articles/2017-02-15/fiat-may-get-second-chance-at-detroit-deal-once-gm-exits-europe">Sergio Marchionne</a>, the CEO over at Fiat Chrysler, Tavares wants scale. </p>
<p>And crucially, that scale would leave PSA better placed to invest in new technology such as electrification, hybrids, connected and autonomous cars. PSA invests <a href="http://www.bloombergquint.com/gadfly/2017/02/14/peugeot-s-hard-sell-on-opel">less in R&D</a> than other major car makers, and GM Europe could offer it some appealing <a href="http://www.carmagazine.co.uk/spy-shots/vauxhall/opel-ampera-e-plugs-away-at-testing-before-2017-launch/">electric car technology</a>.</p>
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<span class="caption">Charging into a lead. An Opel Ampera gets juiced up.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/30998987@N03/7681212060/in/photolist-cGLi4E-cGLdJG-cGLmn7-cGLcw1-cGLs5f-9LLx6n-9LwKUZ-6Vs7kf-9LLwYi-9LwKV8-a25UTp-a28L73-a25RBi-a25MR4-a25Saa-a25Sq2-a25Qrr-a25UfB-a25Ljg-a28Ni7-dosuCm-a25UB2-a25TYa-a28LnL-a25NDt-a28JZq-nzBAK8-8GmAzJ-gzcL5j-a25Mx6-8GmAr7-8GmAQq-8GmAv7-8GmAJL-qSNoqk-a28J8W-cGLccu-anb7UN-a28Hby-anb82E-9nHits-9nGTC1-8FDP8T-bF9Nx1-bohjkd-bBceDZ-8GFeFP-8GFgLT-9Ks3SL-BJTTEj">mariordo59/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
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</figure>
<h2>Headwinds</h2>
<p>There will be a <a href="http://www.just-auto.com/news/gm-downplays-factory-closures-if-psa-deal-seals_id174925.aspx">price to pay</a>, however. PSA would be under serious pressure to cut costs. Plant closures look pretty much inevitable in such a situation, leading to the question of where the axe might fall. </p>
<p>GM plants in Germany might be vulnerable owing to high costs but GM has already <a href="http://www.detroitnews.com/story/business/autos/general-motors/2014/12/05/germany-general-motors/19938005/">closed a plant at Bochum</a> and the German government (like that in France) is going all out to protect jobs. So despite fighting talk <a href="https://www.bloomberg.com/news/articles/2017-02-20/u-k-s-clark-pledges-unbounded-commitment-to-vauxhall-plants">from UK Business Secretary Greg Clark</a>, it is British plants that look most <a href="http://www.am-online.com/news/car-manufacturer-news/2017/02/16/psa-has-little-choice-but-to-close-vauxhall-plants-if-buyout-goes-ahead">vulnerable</a> to cost-cutting moves. That’s not because they are inefficient. Indeed, workers and management at both <a href="http://www.bbc.co.uk/news/business-18098657">Ellesmere Port</a> and <a href="https://www.ft.com/content/ba2205f4-f878-11e3-815f-00144feabdc0">Luton</a> have pulled out all the stops in recent years to work flexibly, get costs down and win contracts to build new models.</p>
<p>Rather, it’s the combination of the UK flexible labour markets (it’s easier to fire workers there), uncertainty over the UK’s trading position with Europe and the post-Brexit referendum sterling depreciation that leaves them exposed. Major components are imported to GM’s UK plants from the continent. The weaker pound makes such imported components more expensive, pushing up assembly costs in the UK. </p>
<p>PSA has form in the UK, of course. It shut its (profitable) <a href="https://curve.coventry.ac.uk/open/file/3be63edd-3126-2f53-5d00-4190f001aed4/1/Rover%20and%20out.pdf">Peugeot plant</a> at Ryton, in the Midlands of England almost ten years ago, shifting production to Slovakia. If the deal goes ahead there is a serious risk it will axe UK operations once more.</p>
<p>The deal is not guaranteed to succeed, however. That perennial M&A disincentive, pensions, <a href="http://www.bbc.co.uk/news/business-39021319">may yet get in the way</a>. And of course, GM may belatedly realise its European operations are about to turn around as new crossover models come on stream. </p>
<p>There may also be unease from GM’s <a href="http://topic.chinadaily.com.cn/index/special/sid/292">Chinese partner Shanghai Automotive</a>. You see, when GM <a href="https://www.bloomberg.com/news/articles/2013-12-12/gm-announces-its-selling-off-entire-7-stake-in-peugeot-citroen">sold a 7% stake</a> in PSA back in 2013 it wasn’t just the French state that came in to help support it during those dark days. Chinese group Dongfeng – Shanghai Automotive’s fierce rival – also snapped up a large stake and could now be getting its hands on GM Europe’s electric technology. </p>
<p>There are always roadblocks to overcome on the way to a merger of this size. But if they can be overcome, it will be Volkswagen looking over its shoulder as it struggles through its own difficulties.</p><img src="https://counter.theconversation.com/content/73288/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Bailey receives funding from the European Union under its Horizon 2020 Marie Sklodowska-Curie Research and Innovation Staff Exchange project MAKERS (grant agreement number 691192), the ESRC under its City Evolutions project, and the Regional Studies Association under its ‘New Manufacturing Regions’ research network.</span></em></p>The French group might well manage to turn around General Motors’ struggling division, but plants will close, and the UK looks vulnerable.David Bailey, Professor of Industry, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/673612016-10-26T03:23:47Z2016-10-26T03:23:47ZHere’s why our next president should block AT&T’s Time Warner tie-up<p><a href="http://www.nytimes.com/2016/10/23/business/dealbook/att-agrees-to-buy-time-warner-for-more-than-80-billion.html?action=click&contentCollection=DealBook&module=RelatedCoverage&region=EndOfArticle&pgtype=article&_r=0">AT&T’s plan to buy Time Warner</a> for US$85.4 billion is only the latest of a string of mega corporate mergers that have been announced in recent years. </p>
<p>That deal would combine the second-largest U.S. cellphone carrier with one of the biggest content producers in the world, with cable networks including HBO, TBS and CNN, as well as Warner Bros. film and TV studio.</p>
<p>But it’s hardly the only tie-up in the offing. <a href="http://www.investors.com/research/ibd-industry-themes/qualcomm-seals-deal-to-buy-nxp-semiconductors/">Qualcomm</a> wants to merge with NXP Semiconductors and create the world’s second-largest chipmaker. Bayer’s bid for Monsanto would <a href="http://www.reuters.com/article/us-monsanto-m-a-bayer-deal-idUSKCN11K128">result in a company</a> that produces more than a quarter of the world’s seeds and pesticides. </p>
<p>After years of consolidation, the top four airlines control two-thirds of the U.S. <a href="https://www.statista.com/statistics/250577/domestic-market-share-of-leading-us-airlines/">market</a>. <a href="http://www.newyorker.com/news/daily-comment/we-need-real-competition-not-a-cable-internet-monopoly">In most cities</a> there is one or at most two cable companies. Internet service <a href="http://www.newamerica.org/oti/policy-papers/the-cost-of-connectivity-2014/">is far more expensive</a> and slower than in most countries in Europe or East Asia. <a href="https://www.statista.com/statistics/199359/market-share-of-wireless-carriers-in-the-us-by-subscriptions/">Four cellphone companies dominate</a> 98 percent of all subscriptions.</p>
<p>While recent articles about the AT&T-Time Warner merger have reminded readers about the negative consequences of industry consolidation in terms of the impact on <a href="http://www.npr.org/sections/alltechconsidered/2016/10/25/499185907/the-at-t-time-warner-merger-what-are-the-pros-and-cons-for-consumers?ft=nprml&f=499299869">consumers</a> and <a href="http://www.nytimes.com/2016/10/05/upshot/liberal-economists-think-big-companies-are-too-powerful-hillary-clinton-agrees.html?action=click&contentCollection=The%20Upshot&module=RelatedCoverage&region=EndOfArticle&pgtype=article">income inequality</a>, there is another reason to block this and similar mega mergers – and try to roll back ones already completed such as drug company <a href="http://www.wsj.com/articles/SB123293456420414421">Pfizer’s purchase of Wyeth</a> in 2009: Such behemoths manipulate Congress and regulators, undermining our democracy.</p>
<p>As <a href="http://www.emeraldinsight.com/doi/pdfplus/10.1108/S0198-8719%282014%290000026007">my research shows</a>, nearly a half-century of corporate consolidation has transformed American politics in ways that have undermined the ability of government agencies to respond to voters’ desires and to implement policies that challenge corporate power.</p>
<h2>Checks and balances</h2>
<p>The U.S. political system tends to be seen as one of checks and balances, with tensions and competing power centers among various branches of government as well as between federal, state and local officials. And for most of the 20th century, there has also been the same sort of balance in the business world as well, with political power and influence split between national and regional companies.</p>
<p>In other words, in many industries government policies such as <a href="http://www.federalreservehistory.org/Events/DetailView/25">Glass-Steagall Act of 1933</a> and the <a href="https://transition.fcc.gov/Reports/1934new.pdf">Communications Act of 1934</a> helped ensure a balance between large national companies and smaller ones that operated at a regional or state level. </p>
<p>For example, Glass-Steagall reformed the <a href="https://global.oup.com/academic/product/managed-by-the-markets-9780199216611?cc=us&lang=en&">financial industry</a> to limit the number of nationally chartered investment and commercial banks that could sell their products anywhere, and forbade them from lines of business reserved for savings and loans. State-chartered savings and loan institutions, meanwhile, <a href="http://www.annualreviews.org/doi/abs/10.1146/annurev-soc-073014-112402">were restricted</a> in where they could do business. </p>
<p>Similarly, the <a href="http://web.asc.upenn.edu/gerbner/Asset.aspx?assetID=2575">government licensed</a> television and radio stations to operate in specific localities. National networks could own only a limited number of stations and broadcast only at certain hours, leaving most of the day for locally produced shows. </p>
<p>As a consequence of this national-regional split, local <a href="http://www.emeraldinsight.com/doi/pdfplus/10.1108/S0198-8719%282014%290000026007">companies had more influence</a> over their state senators and representatives, both through the financial largess of their owners and the electoral power of their employees. Thus the influence of America’s elite on U.S. politics was more spread out, and regionally focused businesses were able to limit the reach of large national companies. <a href="https://deepblue.lib.umich.edu/handle/2027.42/43654">This prevented</a> a few giant corporations from controlling government policy and markets. </p>
<p>But that balance depended on vigorous antitrust enforcement. </p>
<p>Part of the problem is that regulators tend to judge mergers on whether they raise prices and reduce choice for consumers. This vague standard leaves a lot of wiggle room for the Justice Department’s antitrust division and the political appointees who supervise the career of government lawyers. </p>
<p>Enforcement from <a href="http://repository.law.umich.edu/cgi/viewcontent.cgi?article=1117&context=law_econ_current">Franklin Delano Roosevelt through Lyndon B. Johnson</a> was strict enough to prevent the emergence of oligopolies or single industry-dominating firms. The policy changed abruptly in 1969, <a href="https://www.ftc.gov/sites/default/files/documents/public_statements/modern-evolution-u.s.competition-policy-enforcement-norms/0304modernevolution.pdf">when the Nixon administration</a> became more tolerant of within-industry mergers, even when they significantly reduced competition. </p>
<p>Newly formed <a href="http://www.nber.org/chapters/c8650.pdf">mega companies and massive banks</a> used their enhanced political power and influence over policy to lobby for more deregulation in the financial, telecommunications and other industries, which in turn <a href="http://www.people.hbs.edu/estafford/papers/newevidence_perspectivesonmergers.pdf">made more mergers possible</a>. By the 1990s, <a href="http://www.jstor.org/stable/2096400">few restrictions</a> were left. </p>
<p>This is why <a href="http://onlinelibrary.wiley.com/doi/10.1002/ddr.430300411/abstract">Americans tend to pay more for pharmaceuticals</a>, cell and <a href="http://www.newamerica.org/oti/policy-papers/the-cost-of-connectivity-2014/">internet services</a> and <a href="http://www.newyorker.com/news/daily-comment/we-need-real-competition-not-a-cable-internet-monopoly">other products</a> than people in many other countries, and why a <a href="https://www.amazon.com/State-Innovation-Governments-Technology-Development/dp/1594518246">growing share</a> of government spending goes to <a href="https://object.cato.org/sites/cato.org/files/pubs/pdf/PA703.pdf">corporate subsidies</a>. One noteworthy example of that is Medicare D, which is forbidden by law from negotiating prices with pharmaceutical companies for drugs, <a href="http://www.nytimes.com/2015/01/08/upshot/the-drugs-that-companies-promote-to-doctors-are-rarely-breakthroughs.html?hp&action=click&pgtype=Homepage&module=second-column-region&region=top-news&WT.nav=top-news&abt=0002&abg=1">many of which were developed</a> in government labs or with federal grants to university labs. </p>
<h2>Challenging corporate interests</h2>
<p>So before all these mergers, regional companies served as an effective check on the power of their national competitors, providing more room for elected officials to formulate policies that challenged their more monopolistic corporate interests. </p>
<p>As one or a few companies have come to dominate major industries, they have the power to block policies that benefit consumers. These businesses <a href="https://www.amazon.com/Fracturing-American-Corporate-Elite/dp/0674072995">are also able to enrich themselves</a> at the expense of rivals and others and to appropriate resources needed for the investments in infrastructure and education that are needed to sustain American competitiveness. </p>
<p>Enron, which <a href="https://www.amazon.com/Smartest-Guys-Room-Amazing-Scandalous/dp/1591840538">imploded into bankruptcy in 2001</a>, was emblematic of the political effects of such monopolistic companies. Enron was able to gain control over energy markets in a number of states, including California. The company’s leverage over federal and state regulators ensured that it was able to overcharge California industrial businesses as well as ordinary consumers. </p>
<h2>The importance of reinvigorated enforcement</h2>
<p>The Obama administration <a href="https://www.stanfordlawreview.org/online/has-the-obama-justice-department-reinvigorated-antitrust-enforcement/">has been tougher</a> in reviewing mergers than any administration since Nixon’s. Yet Obama has not been tough enough to reverse the tide of consolidation. </p>
<p>Most often Obama administration regulators have merely imposed limited conditions before allowing mergers to proceed. In other words, the “gigantification” that has dominated corporate America for the past 40 years has proceeded largely unhindered. </p>
<p>The question is whether this will change under the next administration. Fortunately, in my view, <a href="http://www.reuters.com/article/us-time-warner-m-a-at-t-idUSKCN12N0OF">there are signs</a> that it will.</p>
<p>Hillary Clinton, for her part, <a href="http://www.nytimes.com/2016/10/05/upshot/liberal-economists-think-big-companies-are-too-powerful-hillary-clinton-agrees.html?action=click&contentCollection=The%20Upshot&module=RelatedCoverage&region=EndOfArticle&pgtype=article">had pledged</a> before the AT&T news to increase antitrust enforcement, with some of her own economic advisers arguing that consolidation has worsened inequality by concentrating profits with a handful of companies. She said AT&T’s deal <a href="http://www.reuters.com/article/time-warner-m-a-at-t-clinton-idUSKCN12N0UX">deserves close scrutiny</a>. </p>
<p>Donald Trump <a href="http://money.cnn.com/2016/10/22/media/donald-trump-att-time-warner/">has come out forcefully against</a> the merger, declaring it “a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few.”</p>
<p>If the next administration is able to follow through – which it’s free to do without Congress’ approval – room would be created for more competitors in various industries. Those new, or newly viable older, businesses will bring their particular and conflicting interests to bear on the making of regulations and legislation and on decisions about federal and state spending. Legislators will come under more diverse pressures and will have expanded opportunities to attract support and build coalitions. </p>
<p>Politics won’t be a confrontation between the interests of one or a few corporations against citizens who usually are disorganized and not mobilized. Conflicts among firms within and across industries would create openings for less wealthy citizens to gain leverage as firms need allies in legislative and regulatory arenas they no longer can control through sheer size. </p>
<p>Antitrust was rightly <a href="http://www.theatlantic.com/politics/archive/2016/06/the-forgotten-wisdom-of-louis-d-brandeis/485477/">understood</a> a hundred years ago as a way to empower citizens as well as to reduce prices and improve product quality for consumers. </p>
<p>Antitrust again can help reduce the advantage the biggest corporations have in politics.</p><img src="https://counter.theconversation.com/content/67361/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Lachmann does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>AT&T’s planned merger would add to a growing list of mega deals that have not only harmed consumers and exacerbated inequality but also undermined our democracy.Richard Lachmann, Professor of Sociology, University at Albany, State University of New YorkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/662792016-10-09T17:11:15Z2016-10-09T17:11:15ZHistory of South African student protests reflects inequality’s grip<figure><img src="https://images.theconversation.com/files/140755/original/image-20161006-32723-tkud6d.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Mike Hutchings/Reuters</span></span></figcaption></figure><p>Protests at South Africa’s universities didn’t suddenly start in 2015 with the “<a href="https://theconversation.com/search?q=%23feesmustfall">fees must fall</a>” movement. Students at poorer institutions that cater almost exclusively for black students such as the <a href="http://www.iol.co.za/news/south-africa/cput-protest-turns-violent-442492">Cape Peninsula University of Technology</a>, <a href="https://pmg.org.za/committee-meeting/17525/">Fort Hare University</a> and the <a href="http://www.news24.com/SouthAfrica/News/Protests-force-closure-of-TUT-campuses-20120820">Tshwane University of Technology</a> have been protesting routinely against rising fees and the cost of higher education <a href="http://www.sahistory.org.za/article/student-protests-democratic-south-africa">since 1994</a>.</p>
<p>But their protest action was largely ignored and often didn’t make headlines beyond regional newspapers.</p>
<p>The most recent “fees must fall” protests have involved students from both historically advantaged and historically disadvantaged universities. They have attracted widespread media coverage and have sparked solidarity protests in <a href="http://citizen.co.za/831588/fees-must-fall-from-london/">London</a> and <a href="http://ewn.co.za/2015/10/23/FeesMustFall-goes-global">New York</a>. </p>
<p>The two very different responses – little media attention given to earlier protests at historically black universities versus widespread coverage and international solidarity for protests at historically white universities – are a stark reminder of post-apartheid South Africa’s embedded inequalities. </p>
<p>We believe that apartheid era inequalities have not been addressed or removed. In fact, decisions taken since the end of apartheid have entrenched inequalities. The most far-reaching of these was the <a href="http://www.che.ac.za/media_and_publications/research/governance-merger-south-african-higher-education">merger process</a>, which was meant to level the academic playing fields. It was <a href="http://www.unisa.ac.za/default.asp?Cmd=ViewContent&ContentID=23530">hoped</a> that mergers would improve historically black universities’ research and graduate output and give them access to better infrastructure and systems.</p>
<p>But we’d argue that the mergers actually deepened inequality and explains why the cries of students at historically black, disadvantaged universities are ignored while their middle class counterparts garner so much attention. </p>
<h2>Why mergers were thought to be a good idea</h2>
<p>The ministry of education’s 2001 <a href="http://www.gov.za/sites/www.gov.za/files/he_transform_0.pdf">National Plan for Higher Education</a> was designed to redress past inequalities. Its aims were to:</p>
<ul>
<li><p>transform the higher education system to serve a new social order,</p></li>
<li><p>meet pressing national needs, and </p></li>
<li><p>to respond to new realities and opportunities. </p></li>
</ul>
<p>The push for transformation took on a physical aspect. Public institutions of higher education were merged, reducing the number from 36 to 23. Three new ones have been created since, taking the number to 26.</p>
<p>The mergers, which were <a href="http://www.justice.gov.za/commissions/FeesHET/docs/2001-NationalPlanForHigherEducation.pdf">hotly debated and widely criticised</a>, sought to unify the fragmented higher education system inherited from the apartheid government. It was <a href="http://reference.sabinet.co.za/webx/access/journal_archive/10113487/237.pdf">hoped</a> the process would address the system’s profound inequalities.</p>
<p>More than a decade on, the mergers’ effects have become clear. There have been some positive spin offs, such as chances for greater collaboration between different disciplines. Successful mergers can bring people together, get them talking and bolster the country’s democratisation agenda.</p>
<p>But sadly, the negatives have outweighed the positives.</p>
<h2>The gap is widening</h2>
<p>Student enrolments at historically disadvantaged – black – universities <a href="http://www.dbsa.org/EN/About-Us/Publications/Documents/The%20challenges%20of%20transformation%20in%20higher%20education%20and%20training%20institutions%20in%20South%20Africa%20by%20Saleem%20Badat.pdf">have dwindled</a>. Students have <a href="http://www.dbsa.org/EN/About-Us/Publications/Documents/The%20challenges%20of%20transformation%20in%20higher%20education%20and%20training%20institutions%20in%20South%20Africa%20by%20Saleem%20Badat.pdf">flocked</a> to the better resourced, historically advantaged – white – institutions. This was already happening in the decade immediately after apartheid, but was exacerbated by the mergers.</p>
<p>Fewer students means less money. Government’s funding formula subsidises institutions according to student enrolments, graduation rates and recognised or “<a href="https://academyofsciencesa.wikispaces.com/DHET+Accreditation">accredited</a>” research publications.</p>
<p>A process that was supposed to redress past inequalities has had the effect of entrenching them, and in some cases widening them. </p>
<p>This needn’t be the case. We have <a href="https://books.google.co.za/books?id=_8bmDAAAQBAJ&pg=PT2&lpg=PT2&dq=Educational+Leadership+in+Becoming:+On+the+potential+of+leadership+in+action&source=bl&ots=hwY77UsBEp&sig=4oziNZ3P21_blDFXksdnSEvtRfQ&hl=en&sa=X&ved=0ahUKEwi4w8uNjMHPAhXIQiYKHVEkBA4Q6AEIQDAE#v=onepage&q=Educational%20Leadership%20in%20Becoming%3A%20On%20the%20potential%20of%20leadership%20in%20action&f=false">argued</a> that mergers could lead to substantial better access and greater differentiation in course offerings to cater for diverse students. But this would require taking a different approach to the current corporatisation model. </p>
<p>It would demand that those who design education policy and run institutions be open to critique, and open to unexplored ways of thinking and pursuing knowledge. This kind of leadership would be more able to recognise a university’s responsibility in relation to society. </p>
<p>We think now is the time to be open to ideas which no longer consider universities as places that produce “technicians of learning”. The time to simply produce technically competent graduates who can get jobs but who do not think critically about their world and themselves is long past. It is the moment to pave the way for cultivating communities of thinking. Students need to be encouraged to think more about their work in relation to how societal injustices can be remedied. </p>
<p>Educational philosopher Steven Burik <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1741-5446.2009.00320.x/abstract">argues</a> that critique is a matter of enhancing the possibility of dissent and the diversity of interpretations. It involves complicating what is taken for granted and pointing to what has been overlooked in establishing identities. Crucially, it is an active opening up of one’s own thought structures that is necessary for other ways to find an entrance. </p>
<p>Educational leaders must, now more than ever, be bold. They must do the unthinkable and remain open to possibilities perhaps not yet explored. This also means they should be open to being questioned and challenged – a matter of being provoked to think differently in relation to the challenges of our time.</p>
<p>*Dr Nuraan Davids and Distinguished Professor Yusef Waghid recently coauthored the book <a href="https://books.google.co.za/books?id=_8bmDAAAQBAJ&pg=PT2&lpg=PT2&dq=Educational+Leadership+in+Becoming:+On+the+potential+of+leadership+in+action&source=bl&ots=hwY77UsBEp&sig=4oziNZ3P21_blDFXksdnSEvtRfQ&hl=en&sa=X&ved=0ahUKEwi4w8uNjMHPAhXIQiYKHVEkBA4Q6AEIQDAE#v=onepage&q=Educational%20Leadership%20in%20Becoming%3A%20On%20the%20potential%20of%20leadership%20in%20action&f=false">Educational Leadership in Becoming: On the potential of leadership in action</a> (2016, Routledge).</p><img src="https://counter.theconversation.com/content/66279/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>When several South African universities merged, it was hoped this would improve access and equality. It had the opposite effect.Nuraan Davids, Senior Lecturer in Philosophy of Education, Stellenbosch UniversityYusef Waghid, Distinguished Professor of Philosophy of Education, Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/659082016-09-27T11:38:14Z2016-09-27T11:38:14ZA deal with McLaren would see Apple shift up a gear on car ambitions<figure><img src="https://images.theconversation.com/files/139225/original/image-20160926-31875-wy074e.jpg?ixlib=rb-1.1.0&rect=1%2C0%2C998%2C500&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/desvarenne_d/16616765108/in/photolist-rjngm9-2Roh6J-fJs5yZ-6K7S9t-iGrFx7-qGecet-hqTAGA-9fBw9D-jeGvEn-JH1Rg-5zUoz5-8bEw3J-nVGTgd-5gkwBP-rsxzV-CGTMdz-jeF3o2-bEZFAH-snxXSM-hqTd8j-eYKZxo-jeHa1q-rB2XWx-orLYgv-jeKi35-bdFyjZ-hqTASf-qoqRV3-79vYML-hqTa4J-6AVpKo-hqT1tr-hqTdgA-dnJVRL-hqTa9J-qBAtVU-ryzZsc-gNn1nZ-7Kkc5E-oM6Jq1-m7Uosj-rh2ARq-aoR6c3-oNRxHR-bER8vg-gNmNv2-aopP93-oP6FeA-rwiFuo-GVAwH">Damien/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>British supercar maker McLaren <a href="http://www.bbc.co.uk/news/business-37435865">may be denying</a> that it is in <a href="https://www.ft.com/content/523422ba-7ffd-11e6-8e50-8ec15fb462f4">talks with Apple</a> about a potential tie-up, but the firm can’t deny that the idea actually makes some sense. </p>
<p>Apple has long been rumoured to be working on its own electric and autonomous car, under its <a href="http://www.businessinsider.com/everything-we-know-about-apples-project-titan-electric-car-2016-8?IR=T">secretive “Project Titan”</a>, and a tie up with an auto firm or supplier was anyway something analysts had been speculating about for some time. </p>
<p>But on first inspection, McLaren’s products don’t seem such an obvious strategic fit for Apple’s car plans.</p>
<p>The company may be based in <a href="http://www.visitsurrey.com/explore/woking-p219311">modest and unremarkable Woking</a>, in south-east England, however its products are anything but. Even the most “basic” of McLaren’s cars – <a href="http://www.topgear.com/car-reviews/mclaren/v8-2dr-ssg-auto/first-drive">the 540C</a> – starts at an eye-watering £125,000, even before being loaded with extras. It features a host of exotic technologies which you wouldn’t think would feature on an “iCar” designed for the mass market which Apple has <a href="http://www.forbes.com/sites/chuckjones/2016/02/21/apples-iphone-market-share-vs-profits/#61b1f3e046f8">targeted so successfully</a> with it computers, iPods and iPhones. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/139226/original/image-20160926-31849-15tkuz8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/139226/original/image-20160926-31849-15tkuz8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/139226/original/image-20160926-31849-15tkuz8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/139226/original/image-20160926-31849-15tkuz8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/139226/original/image-20160926-31849-15tkuz8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/139226/original/image-20160926-31849-15tkuz8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/139226/original/image-20160926-31849-15tkuz8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/139226/original/image-20160926-31849-15tkuz8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/kongjak1/17244533516/in/photolist-rvMXp7-sgQK2o">H.B. Kang/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<h2>A hybrid deal?</h2>
<p>Nevertheless, linking up with McLaren could be a smart move for Apple, and indeed McLaren. The latter has great expertise in a range of areas such as design, engineering, electronic control systems and lightweight materials. </p>
<p>As <a href="https://www.theguardian.com/technology/2016/sep/21/apple-mclaren-acquisition-formula-1-self-driving-car">media reports note</a>, McLaren already has experience in electric vehicles. It is thought to be working on making electric drive trains lighter to make electric vehicles (EVs) more efficient; a technology Apple might find useful in its own EV development.</p>
<p>McLaren has a <a href="http://www.mclaren.com/formula1/heritage/cars/">long and successful history</a> in the Formula 1 motor racing championship. Its luxury vehicle business emerged out of more than 50 years of race experience. This background in the pursuit of speed and raw horsepower might appear not to chime with Apple’s aspirations, but it’s worth noting that modern F1 cars – <a href="http://www.mclaren.com/formula1/car/">including McLaren’s</a> – are essentially hybrids with energy recovery systems.</p>
<p>More broadly, the cost and challenge of developing driverless or autonomous cars is driving partnerships and <a href="http://www.popsci.com/audi-bmw-daimler-enter-autonomous-car-race">takeovers</a> across the industry, including in the supply chain.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/139235/original/image-20160926-31862-1mmq7jc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/139235/original/image-20160926-31862-1mmq7jc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/139235/original/image-20160926-31862-1mmq7jc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=402&fit=crop&dpr=1 600w, https://images.theconversation.com/files/139235/original/image-20160926-31862-1mmq7jc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=402&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/139235/original/image-20160926-31862-1mmq7jc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=402&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/139235/original/image-20160926-31862-1mmq7jc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=505&fit=crop&dpr=1 754w, https://images.theconversation.com/files/139235/original/image-20160926-31862-1mmq7jc.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=505&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/139235/original/image-20160926-31862-1mmq7jc.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=505&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Early prototype?</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/pic-123983275/stock-photo-funny-snack-for-a-child-in-a-shape-of-a-car.html?src=EHttheQXB0GSbhf3taCTsw-1-1">photka/Shutterstock</a></span>
</figcaption>
</figure>
<p>Project Titan itself is rumoured to have <a href="http://www.nytimes.com/2016/09/10/technology/apple-is-said-to-be-rethinking-strategy-on-self-driving-cars.html?_r=0">changed tack of late</a>, with Apple thought to be focusing more on developing autonomous technologies rather than a whole car. At some point Apple may choose to link up with an automotive player – whether a supplier or an established high-volume manufacturer such as Ford or Volkswagen. </p>
<h2>F1 example</h2>
<p>Meanwhile, the huge cost of developing autonomous technologies is a challenge for McLaren. Last year McLaren Automotive had revenues of £475m and made a pre-tax profit of £5.4m on some 1,600 cars delivered. It spent £124m on R&D. By stark contrast, Apple had revenues of US$231 billion last year and a pre-tax profit of US$72 billion (£55.6 billion).</p>
<p>Although buying McLaren for £1-1.5 billion would be barely noticeable for Apple given its cash pile of over £50 billion, a more selective partnership might make more sense as it could be other technologies that Apple is really after.</p>
<p>Perhaps of most interest for Apple is <a href="http://www.mclaren.com/appliedtechnologies/">McLaren Applied Technologies (MAT)</a> which has experience in applying the firm’s technology to other areas, through its development of smart products, smart data systems, virtual test and development environments, and control systems.</p>
<p>When success and failure in F1 can come down to hundredths of seconds in a pit stop to change tyres, collecting and using real time data becomes critical for teams. McLaren – like other F1 firms – uses sensors in its race cars to collect data on things like tyre pressure, brake temperature, the impact of force and so and uses this mass of data to continually improve car performance and inform team strategy through its “predictive analytics” expertise.</p>
<p>Via MAT, the firm’s technology has been applied to a wider range of <a href="http://www.mclaren.com/appliedtechnologies/innovation">other sectors</a>. It has developed <a href="http://www.mclaren.com/appliedtechnologies/case-study/stowhealth-obesity-trial">health</a> monitoring systems, speeded up drug trials run by <a href="http://www.mclaren.com/appliedtechnologies/case-study/gsk">pharma firms</a>, and cut the time <a href="http://www.mclaren.com/appliedtechnologies/case-study/ekofisk">oil and gas drillers</a> spend on exploration.</p>
<p>The firm’s “Decision Insight” platform was also used by the National Air Traffic Control Service (NATS) and Heathrow Airport <a href="https://www.jamesallenonf1.com/2014/03/mclaren-to-use-f1-technology-in-improving-heathrow-airport/">to build a system</a> that enables controllers to optimise the flow of air and ground traffic. That can bring all sorts of benefits, such as through reducing delays, reducing emissions, and improving efficiency.</p>
<p>MAT is also developing <a href="http://www.mclaren.com/appliedtechnologies/case-study/future-wearable-technology">wearable technology</a> to collect personal data that makes it easier for people to record and analyse their lives whether exercising, undergoing treatment for an illness or participating in a clinical trial.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/139238/original/image-20160926-31862-1dxx2bi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/139238/original/image-20160926-31862-1dxx2bi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/139238/original/image-20160926-31862-1dxx2bi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/139238/original/image-20160926-31862-1dxx2bi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/139238/original/image-20160926-31862-1dxx2bi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/139238/original/image-20160926-31862-1dxx2bi.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/139238/original/image-20160926-31862-1dxx2bi.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/139238/original/image-20160926-31862-1dxx2bi.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">McLaren has clear aesthetic links with Apple. Inside the the Woking production centre.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/bisgovuk/6465408953/in/photolist-egNhGC-A4KY2-A4KCr-A4KBn-aRjK54-aRjUQa-aFtG1D-7xUvKs-f3kBWJ-5fThr7-fw7tsk-f3kCeU-aRjE9v-aRjScX-7xQDzi-aFtGfR-5fNWeR-f3kydu-f3kC7m-f36k1Z-f36jWX-f36k6v-f3kyk5-f3kCdQ-f36jZv-7xQGrp-7xQCcT-fwmHS1-uRtnZ-azb5MD-f3kC2S-apU49X-4NdmEn-9cAPgL-f36oQP-f36oLr-f36oWZ-f3kBUd-fw7sbk-fwmDNN-apU4Gx-uRtqu-fwmHCU-4zf2pr-fw7sAg-bL5jmV-bxaBxs-69dC5T-xi2DXs-xbadwC">Department for Business, Innovation and Skills</a>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<h2>High ambitions</h2>
<p>All of this could be of interest to Apple, both in terms of developing its own cars, but more likely in applying McLaren technologies in different ways.</p>
<p>McLaren itself has some ambitious plans. Its <a href="http://cars.mclaren.com/featured-articles/track22.html">“Track 22” expansion plan</a> involves spending £1 billion over the next six years with the aim of developing a range of new models and tripling sales. It hopes to sell 4,500 cars a year by 2022. </p>
<p>A strategic investment from Apple could push that along while enabling Apple to access McLaren’s technologies which are likely to become even more relevant in an area of <a href="https://www.weforum.org/agenda/2016/06/how-the-fourth-industrial-revolution-is-powering-the-rise-of-smart-manufacturing">smart manufacturing</a> and <a href="https://www.theguardian.com/technology/2015/may/06/what-is-the-internet-of-things-google">the internet of things</a>.</p>
<p>The likelihood of Apple buying the whole of McLaren and getting into F1 racing is pretty remote, as intriguing as it might be. Apple is more likely to want access to MAT’s remarkable technologies, which McLaren itself needs to underpin its own competitiveness in F1 racing.</p>
<p>So while a takeover is unlikely, a strategic investment by Apple in McLaren might be of interest to both firms.</p><img src="https://counter.theconversation.com/content/65908/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Bailey receives funding from the EU Horizon 2020 project MAKERS, which is a Research and Innovation Staff Exchange under the Marie Sklodowska-Curie Actions, grant agreement number 691192.</span></em></p>A Woking-Cupertino tie-up seems implausible at first glance, but there is plenty up for grabs which could suit both companies.David Bailey, Professor of Industry, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/627012016-07-19T10:51:26Z2016-07-19T10:51:26ZAs ARM enjoys a Japanese embrace, the lessons it can teach UK tech firms<figure><img src="https://images.theconversation.com/files/131073/original/image-20160719-13851-1qk6r0a.jpg?ixlib=rb-1.1.0&rect=3%2C0%2C2044%2C1253&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">ARM gets ready to grapple with a Japanese adventure.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/shinichiro_hamazaki/17274056186/in/photolist-sjs45W-ecYAVY-7ny9AG-5po9kd-c5Lbgd-jnWzcX-jnZvv5-jnZuY3-jnZAHQ-bKNam-5V4WJR-4s3WXA-fxcW4z-aS33MP-eb6Tre-piFgPd-piFgE5-jnX2df-jnWDna-jnUVjg-jnZBih-jnV2PF-jnWZG9-p2dRME-aS343D-jnZzFj-iVMwZ-ogjV4B-jnWAgv-6oVDZX-jnUWfp-hti5vU-jnWyQp-ebcvbW-jnZAxE-aS342c-ibT6bE-9JmFSA-aS33Xp-aS344z-NeHW8-jnWwst-p2cZ3z-jnZz2y-p2d2hK-jnV51V-htdBoz-aS33UR-CK25mh-5TbXZX">Shinichiro Hamazaki/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>When the 12 founding engineers of chip designer ARM Holdings met in a 14th century barn near Cambridge in 1991 to welcome their new CEO, (now Sir) Robin Saxby, he <a href="http://www.thecasecentre.org/educators/products/view?id=95198">asked them a brutal question</a>: “Should we strike out for something, or just be in the hand-to-mouth chip design consulting business?” </p>
<p>With Saxby’s enthusiasm and the founding engineers’ belief in their technology, the team decided they would aim to become a global standard. They set a target to embed ARM designs into 100m chips by the year 2000. It was an ambitious goal for a tiny company with only £1.32m of investment from its then-struggling backers Acorn, Apple, and VSLI. At the time, many said it was no more than a pipe dream.</p>
<p>But this week, ARM agreed a <a href="http://www.wsj.com/articles/softbank-agrees-to-buy-arm-holdings-for-more-than-32-billion-1468808434">US$32 billion sale to Japan’s Softbank</a>. ARM’s chip designs are embedded in more than 95% of the world’s mobile phones, as well as tablets, servers, and many other types of smart devices. Last year, ARM’s designs went into some 15 billion semi-conductor chips. An incredible feat from an inauspicious start. So what lessons does ARM’s success have for other budding British technology companies? </p>
<p>The first is: don’t try to do everything yourself. Instead, specialise in the activities where you have a distinctive advantage. In ARM’s case, that was designing capable, reliable chips that used little power and could be manufactured efficiently in volume at low cost.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/131045/original/image-20160719-13843-iy49pj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/131045/original/image-20160719-13843-iy49pj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/131045/original/image-20160719-13843-iy49pj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/131045/original/image-20160719-13843-iy49pj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/131045/original/image-20160719-13843-iy49pj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/131045/original/image-20160719-13843-iy49pj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/131045/original/image-20160719-13843-iy49pj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/131045/original/image-20160719-13843-iy49pj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Building networks.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&autocomplete_id=&searchterm=%22computer%20chip%22&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=403343065">Raimundas/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Workhorses</h2>
<p>Then, catalyse the development of a network of partners around you who will fill in the gaps and make you successful as they strive to grow their own businesses. ARM broke the mould at the time, abandoning the conventional wisdom that to succeed in semiconductors you had to be a vertically integrated company which made huge investments in wafer fabrication such as Intel, or remain as a small band of design consultants. </p>
<p>Instead, it decided to become a “chip-less, fab-less chip company”. It would specialise in designs for <a href="https://cs.stanford.edu/people/eroberts/courses/soco/projects/risc/whatis/index.html">Reduced Instruction Set Computing (RISC) chips</a> – the workhorses that control all the background activities users aren’t even aware of. But instead of being a small, specialist provider of designs for RISC processors, ARM was able to turn itself into the pivot of a huge ecosystem, becoming the “glue” that bound a network of hundreds of partners together as well as a magnet for knowledge fragmented between different players.</p>
<p>These include phone and tablet makers, chip fabricators, tool developers, software providers, and makers of complementary chips. Lesson one, therefore, is focus on your core and harness the power of ecosystem partners to do the rest.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/131051/original/image-20160719-13859-1o40a13.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/131051/original/image-20160719-13859-1o40a13.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/131051/original/image-20160719-13859-1o40a13.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/131051/original/image-20160719-13859-1o40a13.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/131051/original/image-20160719-13859-1o40a13.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/131051/original/image-20160719-13859-1o40a13.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/131051/original/image-20160719-13859-1o40a13.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/131051/original/image-20160719-13859-1o40a13.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Focus.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/kgnixer/8448192355/in/photolist-dSxcfT-6dnqx-j89QAj-ePCTGv-sZmGb-yve4C-5ySudS-ePCWQx-9EnApA-5nhqE9-fGEUmg-7jcjfH-ePQkBQ-ePCS8t-dVRbNQ-8ryuLT-71TPqp-ePQmPq-ahxGh1-yXmr-ePCUaF-ePQhrq-4CqcTR-k2BCR1-4sMSrG-fxWsoV-aj6aB1-e8arVT-857pq4-5RdZkJ-gYD6F2-yve4E-5yNcDP-9mLHtH-ahuWjK-ePCXZe-2TTE7t-5hJ2yU-6YxGJC-aMsf32-n1qzRL-6gY6pQ-8ZmLo7-3qyxtR-dKrLJU-5Ygw7v-nU2i4K-7xsfvG-i1awaF-bstS1w">niXerKG/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<h2>Growing the market</h2>
<p>That leads on to the second lesson: concentrate what you can do to make the overall ecosystem “pie” bigger, rather than worrying about maximising your share of that pie. Given the difficulties of scaling up a technology company from a UK base, ARM shows the benefits of letting your ecosystem partners drive global scale for you, propelling your product into billions of devices and accumulating a small royalty from each to create a massive flow of cash.</p>
<p>The third lesson is to think global from day one. ARM grew with hardly a single customer in the UK. It realised that the volume, and the lead customers driving the direction of its industry, were scattered around the world. So, from the outset, it’s early customers and partners were in the US, Japan and Korea including Texas Instruments, Sony and Samsung. Later, a few were added in Europe, such as ST Microelectronics and Nokia. ARM had to be global almost from birth. Now clients include leading Chinese players such as Huawei and ZTE.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/131047/original/image-20160719-13837-1km6113.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/131047/original/image-20160719-13837-1km6113.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/131047/original/image-20160719-13837-1km6113.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/131047/original/image-20160719-13837-1km6113.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/131047/original/image-20160719-13837-1km6113.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/131047/original/image-20160719-13837-1km6113.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/131047/original/image-20160719-13837-1km6113.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/131047/original/image-20160719-13837-1km6113.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Grow the pie!</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/s/pie/search.html?page=2&thumb_size=mosaic&inline=361187264">KucherAV/Shutterstock</a></span>
</figcaption>
</figure>
<p>The SoftBank takeover is certainly not evidence that life will be rosy if and when the UK <a href="https://theconversation.com/uk/eu-referendum-2016">leaves the European Union</a>. In fact, the deal probably has more to do with the decline in sterling relative to the yen and the dollar, which has made ARM shares cheaper for foreign buyers. Add the fact that ARM has hardly any customers in the UK and few in Europe; most of its sales are in Asia and the US. As a result, it’s pretty well insulated from a downturn in the UK economy. </p>
<p>The genuine threat from Brexit would come from any future restrictions on migration; ARM has a very multi-national army of engineers and faces an extreme shortage of suitably trained developers in Britain. Any problems here, and SoftBank’s soothing words about maintaining and growing ARM’s presence in the UK might fade into history. </p>
<p>But ARM is also attractive to the Japanese firm because it has the potential to become a major player in the “Internet of Things” – the emerging world where smart machines, sensors, and devices talk to each other. It is another lesson for UK tech firms to keep moving into new spaces. </p>
<p>ARM is particularly well placed to benefit from this emerging network, not only because of the strength of its technology and development capacity, but also because its ecosystem approach is a perfect fit for a market that requires a multitude of specialist companies, institutions and governments to work together. Even at a 40% premium over ARM’s share price before the deal was announced, Softbank’s acquisition looks like a smart move.</p><img src="https://counter.theconversation.com/content/62701/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Williamson does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Cambridge-based chip designer offers a useful blueprint for others.Peter Williamson, Honorary Professor of International Management, Cambridge Judge Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/621152016-07-11T15:01:24Z2016-07-11T15:01:24ZPoundland’s troubled merger puts it in play for South African buyer<figure><img src="https://images.theconversation.com/files/129841/original/image-20160708-24092-6svzkx.jpg?ixlib=rb-1.1.0&rect=4%2C437%2C3171%2C1949&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">ff b aee c o</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/the_justified_sinner/5870144355/in/photolist-9WJ2pr-hQhFRR-hQiL3c-nhPcz5-hQi6Xe-hQip99-hQhK2N-hQhSMP-hQhgaB-hQhdQB-hQh9Br-hQi8fK-o13375-hQiwNh-hQhTdC-hQiRUc-eD1BUG-FWvUZB-dCQJQo-xDqB5y-GCJWxP-CX99pN-otVy2q-JKfhFu-HRWWBZ-ejDCjT-hQhNsg-hQiMdP-hQi4pi-ohf852-hQiFbP-hQhHnr-dD7gQ6-7K5bdf-edVjK1-ekdjbg-edikGv-FtB1g9-e3MTDT-dD7i6D-e8k4DD-oxNUtq-eQa8uj-edik3K-eiJ481-ei5KAn-omaszi-e6GQUk-9foz7S-fKCqvr">Dauvit Alexander/Flickr</a></span></figcaption></figure><p>A South African retail group might be about to make a land grab on British high streets. Many market players believe that Steinhoff International’s recent purchase of a 23% stake in Poundland <a href="http://www.bloomberg.com/news/articles/2016-06-15/steinhoff-mulls-poundland-bid-in-latest-european-retail-push">is tantamount to making a full bid</a> as it seeks to invest in more stable political and economic environments than its South African homeland. </p>
<p>The Stellenbosch-based firm already tried and failed to buy <a href="https://www.theguardian.com/business/2016/mar/18/sainsburys-rival-steinhoff-pulls-out-of-race-for-home-retail-group">Home Retail Group</a>, owner of Argos, <a href="https://next.ft.com/content/c2153034-699a-3e8e-a08e-0bf22c380ccd">and Darty, the French electrical retailer</a>. Poundland – only just emerging from post-merger woes of its own – might prove an easier target.</p>
<p>Since the 2008 recession there has been a rapid growth in low-cost retailers as consumers became more price sensitive. Aldi and Lidl have <a href="http://www.bbc.co.uk/news/business-34315643">decimated the profitability</a> of the major grocery supermarkets. Primark and Matalan have continued to make strong progress in the clothing retail industry. The £1 store formats have also flourished with a number of chains rapidly expanding. </p>
<p>The format is now a familiar one: a range of products sold at £1, some known brands, others not. They are sold in sizes to reflect the price but offer good value against the conventional supermarket. Premises are usually drab and service levels low; products may well be unavailable. They are normally on the high street, but in spots where there is less flow of customers and where rents are lower. In effect they have been cashing in on premises left vacant by the internet-prompted shrinkage of the high street.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/129843/original/image-20160708-24084-vlghip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/129843/original/image-20160708-24084-vlghip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/129843/original/image-20160708-24084-vlghip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=311&fit=crop&dpr=1 600w, https://images.theconversation.com/files/129843/original/image-20160708-24084-vlghip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=311&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/129843/original/image-20160708-24084-vlghip.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=311&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/129843/original/image-20160708-24084-vlghip.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=391&fit=crop&dpr=1 754w, https://images.theconversation.com/files/129843/original/image-20160708-24084-vlghip.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=391&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/129843/original/image-20160708-24084-vlghip.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=391&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Discount stores are taking over.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/jeepersmedia/16134591891/in/photolist-qzL13P-qxDyhj-nEX4pq-qoiarF-mzziuR-ExAHnp-mhGuXZ-rcYDFE-mp7XcM-miv1Ln-d9Ucj3-kKKXKV-m43rBV-zJJBX-BgyDB2-BwxWF7-dPi62N-hqvHjY-s7iDNi-bff9wg-iC86bD-pt69Kx-q6Lm86-oFqg9g-HyohvA-pTeWxB-rNbwPL-GZ6Cke-9iYMK-pKQyu9-mXkGRg-4D85RT-cUK8s9-pAREhy-dPi67G-mXkRcH-miuhKF-rFzCau-8GRTuV-m43ZqH-RkXyU-hUAHPE-oWvtmD-or5bk3-ifAvQs-dPcsW2-m43pNV-o1g5cM-mp7Mkc-mkJp9R">Mike Mozart/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Timing is key to successful deals and Poundland is the perfect opportunity. The <a href="http://www.retailgazette.co.uk/blog/2016/02/poundland-faced-with-hidden-losses-in-99p-stores-deal">difficult acquisition of 99p Stores</a> by Poundland in 2015 is the real problem. Not only did Poundland underestimate the risks associated with competition referral but also the costs and disruption of converting and integrating the 99p Stores. Both 99p Stores and Poundland <a href="https://next.ft.com/content/f53b2fd1-8938-3a9b-a68c-e23ad9715410">experienced poor sales</a> during the protracted referral period when management would be distracted from running the business by the internal process. </p>
<p>Research shows that typically during bid and integration phases <a href="http://econpapers.repec.org/article/tprrestat/v_3a67_3ay_3a1985_3ai_3a2_3ap_3a259-67.htm">significant market share is lost</a> in the acquired business and <a href="http://onlinelibrary.wiley.com/doi/10.1002/1097-0266(200101)22:2%3C185::AID-SMJ149%3E3.0.CO;2-M/abstract">key staff leave</a>. Both chains suffered as sales declined and profits were pushed lower. The Poundland <a href="http://www.hl.co.uk/shares/shares-search-results/p/poundland-group-plc-ordinary-1p">share price more than halved</a>.</p>
<h2>Stretching the structure</h2>
<p>Businesses which are low cost competitors selling basic, undifferentiated products at low prices usually have a cost infrastructure to match. Because they only compete on price, their costs tend to be similarly aligned. And so such stores have a pared down, low-cost administration that ensures prices are as cheap as they can be, but they will struggle to find the capacity to deal with major change. </p>
<p>And this is basically what has happened with Poundland and 99p Stores. Research finds that productivity of staff reduces by 50% in the <a href="https://books.google.co.uk/books?hl=en&lr=&id=-psqqi0E2kkC&oi=fnd&pg=PT6&dq=Whitaker,+2012+productivity+merger+staff&ots=a07lsfp_kk&sig=f8udTvk_ddOCz80wrgvC50TBm9c#v=onepage&q&f=false">first four to eight months of a deal</a>. Boards sometimes forget that adding a significant business will push at the edges of an inflexible cost structure as they seek to integrate effectively.</p>
<p>Acquisition decisions are frequently made by boards with limited regard for how the two businesses will actually combine. More than <a href="https://hbr.org/2011/03/the-big-idea-the-new-ma-playbook">two thirds of acquisitions</a> materially fail to deliver on expectations. Integration problems feature as a significant factor in 80% of the poor performers. Poundland’s previous successful expansion was predominantly organic and board confidence may well have been a causal factor in the bid decision.</p>
<h2>Win-win</h2>
<p>Poundland says that the bulk of the costs have now been taken thanks to an accelerated integration programme and that the road is clear ahead. However competition is increasing in the low-cost retail industry with other competitors expanding their offerings. Poundworld, Poundstretcher, B&M, and a number of other discount regional stores have been able to expand due to the continuing shrinkage of the high street and associated availability of reasonable locations at low rent. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/129852/original/image-20160708-24071-18f3jyp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/129852/original/image-20160708-24071-18f3jyp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/129852/original/image-20160708-24071-18f3jyp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/129852/original/image-20160708-24071-18f3jyp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/129852/original/image-20160708-24071-18f3jyp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/129852/original/image-20160708-24071-18f3jyp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/129852/original/image-20160708-24071-18f3jyp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/129852/original/image-20160708-24071-18f3jyp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Penny pinching.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/126131780@N08/14713741248/in/photolist-oqcLDW-5BM2Lf-wKrnMW-wvqVMr-vjnw5J-9jM8Nq-2iR4tG-sa7bWY-buPSMA-4CEdvf-4wysPe-qgjXTe-LnGqd-byL3Qd-8wqUP8-qcbzSt-9VBHrL-bMEUM6-rdfwtu-2krRzr-byLcGd-6JxE6K-sacr1t-buTpDf-rQVxH2-byL91u-bMEN2P-8dhzuQ-5jbMmZ-byLbqo-byL9Ey-4W8gn-aQ1RbD-aeQh8M-bMETrt-oGqJUK-4oPHuT-LnGqj-6TTSg9-2G7fXw-5fhgkq-3eLCAy-upRptr-vmHfXX-y1P8SX-GZvxtT-vmGD2D-upHHAf-5YoJ4K-vmdKem">Jacob Edward/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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</figure>
<p>For Steinhoff, whatever happens, it stands to gain. For a start, the fall in sterling after the UK vote to leave the European Union makes a bid at least 10% cheaper than it was two weeks before. The South African firm has acquired a significant stake in Poundland at half the price it was before the 99p Stores acquisition. </p>
<p>Steinhoff’s 23% holding provides the opportunity to buy the business. If that happens then it may have the opportunity to exploit a post-EU-referendum recession which would ordinarily favour discounters as consumers hunt for bargains. And on the flipside, if stronger performance at Poundland helps it to put up a strong bid defence, then Steinhoff should be able to sell out at a substantial profit.</p><img src="https://counter.theconversation.com/content/62115/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Colley does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The time may be ripe for a South African raid on the UK’s discounted high street.John Colley, Professor of Practice, Associate Dean., Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/480792016-01-06T11:07:33Z2016-01-06T11:07:33ZAffordable Care Act’s push to consolidate health care to curb costs may backfire<figure><img src="https://images.theconversation.com/files/106752/original/image-20151220-27880-1gavuh6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The good old days.</span> <span class="attribution"><span class="source">House call via www.shutterstock.com</span></span></figcaption></figure><p>In the United States, physicians practice medicine in a variety of settings, ranging from small solo practices to large, multispecialty group practices consisting of hundreds or even thousands of practitioners. </p>
<p>The tradition of the solo practitioner is one that is immediately familiar to most people, in part because this is the typical depiction of physician practice in movies and television shows. </p>
<p>However, this model of practice is falling by the wayside, and physicians are increasingly more likely to practice in the setting of large group practices. In 2008, only 18% of family practice physicians <a href="http://www.nytimes.com/2011/04/23/health/23doctor.html?_r=1">were employed</a> in a solo practice, compared with 44% in 1986. This trend is being further encouraged by the Affordable Care Act on the grounds that larger practices can help curb costs by leading to better outcomes.</p>
<p>But will this physician consolidation actually lead to lower health care costs? The answer to this question has important consequences. Consolidation among physician practices has typically occurred via mergers between large health care systems. </p>
<p><a href="http://www.startribune.com/fairview-weighs-merger-with-university-of-minnesota-doctors/331494721/">Proponents</a> of these mergers typically argue that they benefit patients, in large part because of their ability to reduce costs. </p>
<p>Are these claims too good to be true?</p>
<h2>Benefits of a larger practice</h2>
<p>Larger practices can often <a href="http://anesthesiology.pubs.asahq.org/Article.aspx?articleid=2411187">offer</a> many benefits for the physician, such as administrative support, interaction with colleagues and increased resources for professional development.</p>
<p>In addition, these large practices may benefit patients as well. Sometimes, bigger is indeed better, and large practices may be able to improve patient care and reduce costs by leveraging their size to implement large-scale measures aimed at quality improvement. For example, these groups may be able to more easily employ electronic medical record systems aimed at improving coordination of care, monitoring physician performance and reducing physician errors. </p>
<p>Indeed, these potential benefits form the rationale for many policies aimed at encouraging further consolidation among physicians. </p>
<p>For example, the Affordable Care Act <a href="https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ACO/index.html?redirect=/Aco">encourages</a> physicians to form large, multispecialty groups known as Accountable Care Organizations, in large part because of the belief that these organizations will be able to reduce costs by improving coordination of care. </p>
<p>However, a <a href="https://www.healthlawyers.org/EVENTS/WEBINARS/ROUNDTABLEDISCUSSIONS/2011/Pages/PhysicianPracticeMergers.aspx">key question</a> is whether these potential benefits may be outweighed by the potential disadvantages associated with large practices. Of crucial concern to antitrust authorities is that large practices may leverage their size to negotiate higher payments from insurers (and indirectly, patients), which could actually increase costs. </p>
<p>Simply put, a large practice is on much better ground than a solo practitioner to negotiate higher payments from a health insurers. </p>
<p>In a <a href="http://content.healthaffairs.org/content/34/6/916.abstract">recent paper</a>, we examined whether larger practices were associated with higher payments from private insurers in the case of orthopedic surgery and total knee arthroplasty, also known as “knee replacement.” </p>
<h2>Knee-jerk reaction</h2>
<p>As a first step, we characterized the degree to which the provision of total knee arthroplasties in a given area was dominated by a single orthopedic surgery group or a small number of groups. Total knee arthroplasty is a good surgery to study because it is a commonly performed procedure whose use <a href="http://jama.jamanetwork.com/article.aspx?articleid=1362022">nearly doubled</a> from 1991 to 2010. </p>
<p>We then examined whether insurers paid higher prices for total knee arthroplasty in markets dominated by a single group or a small number of groups. </p>
<p>Of course, markets that are dominated by a small number of groups may be associated with many other factors that could drive higher insurer payments. To address this possibility, rather than comparing prices across markets, our approach examined how changes in market structure were associated with changes in total knee arthroplasty payments within a given market over time. </p>
<p>In other words, our approach followed individual markets and asked how the payments in those markets changed over time as the provision of total knee arthroplasty became more (or less) dominated by a small number of groups. </p>
<h2>Consolidation leads to higher costs</h2>
<p>Overall, our results showed that payments were higher in markets dominated by a small number of groups. </p>
<p>In particular, insurer payments for total knee arthroplasty were 7% higher in the markets where the provision of total knee arthroplasty were most dominated by small number of groups, compared with markets where the provision of total knee arthroplasty was more spread out across groups. </p>
<p>To put this in context, this 7% increase is almost as large as the overall long-term decline in total knee arthroplasty payments we observed during the time period we studied (2001-2010). </p>
<h2>Policy implications</h2>
<p>Our results have several important policy implications. </p>
<p>First, they argue for some skepticism in evaluating the potential benefits of mergers between physician groups, as well as hospitals and health care systems more broadly. </p>
<p>While proponents of these mergers typically cite many of the potential benefits –such as the benefits discussed above – our research also suggests that these potential benefits may be outweighed by the ability of large providers to leverage higher payments from health insurers. </p>
<p>Second, our results suggest that antitrust authorities should closely evaluate whether any potential mergers may result in insurers (and patients) paying higher prices for medical services. For example, antitrust authorities should carefully consider the economic impact of the recently announced <a href="http://www.twincities.com/localnews/ci_28947845/fairview-university-minnesota-physicians-announce-merger">merger</a> between Fairview Health and the University of Minnesota’s health system. </p>
<p>At the end of the day, we are witnessing a large change in the way medical practice is being delivered, as the traditional model of solo practice gives way to a model in which physicians tend to practice in the context of larger organizations. </p>
<p>While the model has the ability to benefit patients and physicians, our study suggests that more work is also needed to understand its potential pitfalls.</p><img src="https://counter.theconversation.com/content/48079/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eric Sun does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An examination of orthopedic surgery and knee replacement showed that higher payments were associated with markets dominated by a few large physician groups.Eric Sun, Instructor of Anesthesiology, Perioperative and Pain Medicine, Stanford UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/450862015-08-05T09:50:45Z2015-08-05T09:50:45ZPrix fixe: is airline consolidation to blame for sky-high airfares?<figure><img src="https://images.theconversation.com/files/90783/original/image-20150804-11996-v4qjvv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">After a wave of mergers, few large US airlines remain.</span> <span class="attribution"><span class="source">Delta planes via www.shutterstock.com</span></span></figcaption></figure><p><a href="http://www.bbc.co.uk/news/business-33353360">News</a> last month that the Department of Justice is investigating the biggest three US airlines for possible price-fixing again raises the question of whether the recent wave of mergers has left the market with too few competitors. </p>
<p>A case in point is the sharp drop in oil prices over the past year, which should lead to a decline in airfares. While I was cautiously optimistic that this might happen, I <a href="https://theconversation.com/oil-prices-have-nosedived-why-arent-airfares-doing-the-same-35630">suggested</a> in December that the lack of industry competition would likely prevent fares from following crude prices lower. </p>
<p>Air travelers are probably well aware that this is exactly what happened. </p>
<p>The most recent Department of Transportation data show inflation-adjusted airfares in the fourth quarter were 2% higher than a year earlier, even though the price of jet fuel was down 25% over the same period. </p>
<p>Fuel makes up about 30% of an airline’s total expenses, so a 25% decline in jet fuel prices implies a 7.5% decrease in costs, all else being equal. So is reduced competition to blame for airlines not passing on these savings to passengers in the form of lower fares? And are airlines colluding on price? </p>
<p>The answer to those questions is not as simple as it looks, in part because competition is more than just a question of numbers (10 airlines versus three) and some collusion is actually legal. </p>
<p>Let’s begin by looking at how the US airline industry has <a href="http://www.forbes.com/sites/greatspeculations/2015/07/09/dojs-investigation-will-not-have-long-term-impact-on-the-us-airlines/">consolidated</a> in recent years. </p>
<h2>Consolidation and competition</h2>
<p>Over the last 15 years or so, the airline industry experienced six large mergers (most notably Delta-Northwest, United-Continental and American-US Airways), the disappearance of several smaller carriers (Aloha, ATA, National) and two successful entries (JetBlue and Virgin America). </p>
<p>That has left us with three large carriers (American, United and Delta) that run hub-and-spoke networks featuring multiple hubs, several airlines that rely more on point-to-point traffic (Southwest, JetBlue, Virgin America) and a few smaller hub-and-spoke players, such as Frontier and Alaska Airlines. </p>
<p>This is part of a global trend, with carriers in both <a href="http://www.worldfinance.com/home/is-european-airline-consolidation-ready-for-takeoff">Europe</a> and China, for example, consolidating toward a similar structure. Transatlantic routes are <a href="http://www.flightglobal.com/news/articles/analysis-north-atlantic-joint-ventures-continue-to-389676/">dominated</a> by three joint ventures that together control more than 75% of all passenger capacity.</p>
<p>Of course, the total number of carriers alone does not necessarily correlate with the extent of competition. We might have 10 carriers in the US market but no competition because they don’t compete directly on any routes. On the other hand, we could have just three airlines competing on every route in the country. </p>
<p>Indeed, looking at average market concentration in the US over the past 25 years or so, we see that most nonstop routes are <a href="http://www.anna.aero/2010/04/20/almost-80-of-us-domestic-routes-are-a-monopoly-either-of-uniteds-possible-mergers-would-have-little-effect-on-domestic-competition/">monopolies</a>, a constant that exists regardless of how many total airlines operate across the country. </p>
<p>For example, if you live in Atlanta, the airline most likely to serve any given destination with a nonstop flight will be Delta.</p>
<p>Certainly, “thick” markets such as Los Angeles to New York have attracted a lot of carriers, but “thin” routes such as Atlanta to Albuquerque might only be able to sustain nonstop service of a single carrier, with many passengers connecting at Atlanta to other Delta flights. </p>
<p>In fact, city pairs where only one-stop services are feasible have historically been less concentrated markets as compared with those where nonstop flights are offered. When I lived in Orange County, California, I usually flew from the local John Wayne Airport, connecting to East Coast destinations and beyond via Chicago, Atlanta, Salt Lake City, Denver, Houston or Dallas, depending on the airline. </p>
<p>A passenger living in Orange County now has the same choice of hub airports to connect through as before, but fewer airlines providing such a connection. In a paper I <a href="http://www.sciencedirect.com/science/article/pii/S0965856413002371">published</a> recently with Paulos Lakew, we demonstrated how airline mergers can disproportionately <a href="http://lancasteronline.com/business/local_business/study-airline-mergers-cut-of-flights-from-hia-th-most/article_4bd83d80-31fb-11e5-9187-17bceaf70680.html">hurt smaller communities</a> via a reduction is such one-stop competition.</p>
<h2>Concentration versus conduct</h2>
<p>A rule of competition is that how fiercely companies will end up competing is determined by how easily customers can switch between their products or services. For instance, an airline offering a flight at a time convenient for business travelers may be able to command a higher price than a carrier with a flight to the same destination at a less convenient time, since business passengers may not view the two services as comparable. </p>
<p>So even when multiple airlines offer the same nonstop route, passengers may not view them as interchangeable: one appeals to business travelers, the other to leisure fliers. A 1997 academic study <a href="http://faculty.haas.berkeley.edu/borenste/download/IJIO99Bunch.pdf">demonstrated</a> that airlines do seem to schedule their flights at different times to avoid price competition. </p>
<p>Another way the appearance of competition may fail to put pressure on prices is through frequent flier programs. Passengers vested into an airline’s <a href="https://theconversation.com/frequent-flying-is-getting-a-lot-more-rewarding-for-those-at-the-very-top-34458">loyalty program</a> are often willing to pay a premium for trips with the preferred carrier.</p>
<h2>Tacit collusion and soft competition</h2>
<p>The key to understanding competition in the airline industry is to realize that several airlines compete year after year and on many markets in what economists call a <a href="http://lexicon.ft.com/term?term=multi_market-competition">multi-market contact</a>. </p>
<p>This typically leads to what is known as tacit collusion, in which competition is minimized without any explicit agreement among the market participants. The fewer the number of companies in the market, the more likely there’ll be tacit collusion. </p>
<p>In the airline industry, it means carriers don’t compete aggressively (they keep fares higher and frequency of service relatively lower) in anticipation that competitors will respond in kind. On the flip side, an airline would punish a rival that does not hold up its end of the implicit deal by competing very aggressively. </p>
<p>While explicit collusion in which competitors agree on prices is <a href="https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/dealings-competitors/price-fixing">illegal</a>, and is in fact what the DOJ is investigating some airlines for doing, the tacit kind is perfectly legal. </p>
<p>And the more multi-market contact there is, the more likely you’ll have this tacit collusion and softer competition. In other words, imagine two companies that compete on a wide variety of markets. In some, company A is stronger, in others, company B is dominant. The companies thus have an incentive not to compete too aggressively where they are stronger because it might invite retaliation in markets where they are weaker. </p>
<p>The DOJ itself helped foster this environment in recent decades. It approved each merger after reviewing the overlap of the partner airlines’ network, finding little. Thus, it would appear that competition wouldn’t be hurt if they tied up. But at the same time, all these mergers created more multi-market contact throughout the industry, making tacit collusion more likely. </p>
<p>Let’s say, for the sake of example, a decade ago American Airlines competed with Northwest in 100 markets and with Delta in 70 separate markets. After Delta and Northwest merged in 2008, American would now be competing against the combined airline on 170 markets. </p>
<p>The actual amount of multi-market contact is <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1657728">much higher</a>. According to my calculations, American and Delta are both present on over 1,000 airport-pair routes, if we consider both nonstop and one-stop markets. </p>
<p>We are yet to understand the extent to which these increases in multi-market contact might have softened the competition on the US airline market.</p>
<h2>So is there enough competition left?</h2>
<p>In the end, airline consolidation is a mixed bag. It has led to the disappearance of a number of carriers (in particular, three large network carriers have left the industry through mergers in the last decade), which means less competition and a greater potential for tacit collusion on prices, but also increased efficiency and <a href="http://marketrealist.com/2014/07/must-know-merger-synergies-in-the-us-airline-industry/">lower costs</a> (for the airlines), which are sometimes passed along to consumers. </p>
<p>The DOJ is right in paying increased attention to the airline industry – preventing abuse of market power is, after all, its job. But the environment in the industry appears ripe for softer competition to emerge even without explicit price agreements between the carriers. The absence of lower fares in response to substantially lower jet fuel prices is clearly not a good sign.</p>
<p>Unfortunately, there is not much more that the DOJ can or should do. It would be very difficult to make a convincing case for breaking up any of the large network carriers, and price regulation is clearly not an option in the US. </p>
<p>In the longer term, market forces will prevail. If the airlines <a href="http://www.reuters.com/article/2015/06/08/us-airlines-iata-forecast-idUSKBN0OO1E120150608">continue to profit</a> (US carriers are forecast to make US$15.7 billion this year), that may lure new entrants onto the market, creating a more competitive environment.</p>
<p>That may be consumers’ only hope for more price competition.</p><img src="https://counter.theconversation.com/content/45086/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Volodymyr Bilotkach does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Justice Department is investigating whether airlines are colluding over airfares, but high prices may simply be a consequence of industry consolidation.Volodymyr Bilotkach, Senior Lecturer in Economics, Newcastle UniversityLicensed as Creative Commons – attribution, no derivatives.