In the middle of October, after months of courtship, Anheuser-Busch InBev and SABMiller struck a $104.2 billion deal to merge. The global beer conglomerates behind Budweiser, Miller, and a stable of other beer brands will, if approved by regulators, become a single company with control over nearly 70 percent of the U.S. beer market, and 30 percent of the market across the globe.
Two weeks later, Walgreens and Rite Aid announced an agreement to combine into the country’s largest pharmacy company, on the heels of rival giant CVS buying Target’s pharmacies in June. Meanwhile, Staples is moving ahead with its $6.3 billion acquisition of Office Depot (which itself acquired OfficeMax in 2013), Bass Pro Shops is exploring a bid for the hunting and fishing chain Cabela’s, and last week, in a transaction that will create the country’s largest hotel chain, Marriott announced its acquisition of Starwood Hotels.
Even as craft breweries, farmers markets, and other small-scale, locally owned enterprises experience renewed vitality, at the other side of the economic spectrum, there’s more consolidation than ever. Mergers and acquisitions are expected to hit a record $4.58 trillion this year, the American Prospect recently reported. And nearly a third of industries qualify as “highly concentrated” under current federal antitrust standards, found a recent Wall Street Journal analysis, up from about a quarter of industries a decade ago.
Much of this concentration is invisible to consumers. When AB InBev bought Chicago’s Goose Island Brewery for $38 million, for instance, it kept the well-loved craft brewer’s recipes and label, a pattern that it’s continued with its other craft acquisitions. Bar patrons still see a variety of beers on tap, and might not realize that their dollars now flow to AB InBev when they choose any number of them. Or take milk. Grocery shoppers choosing between 31 milk brands around the country rarely know that they’re all owned by one milk processor, Dean Foods, which controls 36 percent of the U.S. market for milk.
Despite this illusion of choice, the effects of concentration ripple throughout all areas of the economy, beginning with the built environment. Many Walgreens locations sit across the intersection from a Rite Aid, and many Office Depot locations occupy the same shopping centers as Staples. As the newly unified companies consolidate their stores, they’ll leave behind them a wave of vacancies.
It continues with the trucks delivering to bars and liquor stores. AB InBev is the second largest beer distributor in the U.S., and as it keeps buying up smaller distributors, it makes it harder for craft brewers to get their beer to market. “Historically, [AB-owned distributors] only distribute to the Anheuser-Busch family of products,” the head of the Colorado Beer Distributors Association told a local paper when AB InBev bought two major distributors in the state this summer.
The same force is at work with prescription drugs. Walgreens and CVS—even before their acquisitions of Rite Aid and Target pharmacies—hold market share of at least 50 percent in 70 of the 100 largest metro areas in the country, a position that gives them tremendous power to negotiate with drug companies and insurers and to simply eat expenses, such as under-reimbursement for generic drugs, that independent pharmacies cannot. What’s more, CVS also owns one of the two largest pharmacy benefit managers, or PBMs, that negotiate and reimburse drug prices. This position allows the company to define the terms by which smaller pharmacies have to compete, including how much they are reimbursed for filling prescriptions.
Whether or not they’re a brewer looking for a distributor or a pharmacist seeking fair prices, all Americans are impacted by the extreme market concentration of which this latest wave of mega-mergers is the latest symptom. A strong economy relies on entrepreneurship, for instance, but new business formation fell by nearly half between the 1970s and the 2010s, and recent research links our increasingly concentrated markets to the decline. Income inequality, too, is exacerbated by the increased firm size and heightened market power that come from mergers and acquisitions, economists have found [PDF], in the form of profits that accrue only to executives and shareholders.
We have tools designed to address concentrated corporate power and its damaging consequences. They’re antitrust policies, but since the 1970s, they’ve been increasingly weakened as both regulators and courts have adopted an ever-narrowing lens on the harms of market power. Consider that as recently as the 1970s, the Department of Justice sued more than 36 poultry companies, which together accounted for half of the market, for plotting to control the supply and price of chicken. Today, just three companies control that same market share and have escaped antitrust enforcement—at great cost to farmers and to the food system.
In a nod to the degree to which they have abdicated their authority, when the country’s antitrust enforcers updated their guidelines for mergers in 2010, they increased their threshold for defining a market as “highly concentrated.” Their reasoning behind the change was, in part, because they had simply stopped challenging mergers below that level. “In an effort to conform the Guidelines to practice, the 2010 U.S. Guidelines raised the HHI thresholds,” the Department of Justice explained at the time.
This recent spate of proposed mega-mergers is yet another call to revive an approach to antitrust that prioritizes competition, from applying stricter oversight to pending mergers to breaking up the most dominant companies. Until then, we’ll continue to see the big get bigger, and the powerful get even more powerful.
Image by Wagner T. Cassimiro.