In 2018, Did Business Get Too Big?


The number of mega mergers announced this year raises a question: Has the rush toward bigness been good or bad for society and for business itself?

Economic theory helps us understand the impact of scale in business. As its operations expand, a company might enjoy economies of scale and benefit from a higher market share, but it may suffer diseconomies of scale and higher costs of management should it expand too much. Economics also teaches us that large firms may use their power to raise prices, reduce wages, suppress innovation and skew government policy, all of which may damage society.

In 2018, corporations continued to seek bigness, often for good business reasons. But at the same time, society’s resistance to large corporations grew, and more companies rediscovered the advantages of focus and of decentralization. Let’s take a closer look.

Take health care in the United States as an example. The consolidation of that industry continued this year, as mergers in one segment prompted other mergers among suppliers and buyers. Large pharmaceutical companies continued to hoover up biotech firms, topped by Takeda’s $59 billion acquisition of Shire. And they continued to rationalize their portfolios: GlaxoSmithKline and Pfizer announced that they plan to merge their consumer-health divisions in a joint venture, less than a year after Glaxo consolidated a similar business it had earlier acquired from Novartis, also by way of a joint venture. Horizontal mergers, where businesses consolidate in the same industry, among hospitals were approved this year, such as that between Beth Israel Deaconess Medical Center and Lahey Health in Massachusetts.

There have also been groundbreaking vertical mergers, where companies operating at different points along the value chain join forces. A tie-up of CVS and Aetna, worth $69 billion, and one between Cigna and Express Scripts, worth $52 billion, were approved, though the former is held up in court again. These combinations were motivated in part by the threat of entry by big technology firms. Indeed, early in the year, Amazon launched a partnership with Berkshire Hathaway and JPMorgan Chase aimed at disrupting the industry, and it continued to invest in health care initiatives.

 As a result, the work of health care companies in the United States is being reshuffled and remixed, but the results are as yet uncertain. We don’t know if Amazon will indeed disrupt the industry, or if the likes of CVS-Aetna can revamp it from within. Even though judges have waved through big mergers, the real jury — that is, patients and consumers — is still out.

The impact of big mergers in other fields is just as complicated. A judge waved through the $85 billion AT&T-Time Warner vertical merger (though this case too is in appeal), and Disney and Fox completed their $71 billion horizontal merger this year. Netflix, Amazon and Apple, the new media companies, didn’t make major deals, but continued to amass content arsenals. We don’t know yet whether these moves will bring us better entertainment and news. And, while the growth of these companies again offers them power and profit, that is not without management challenges and perhaps brings new societal costs.

Facebook stands out as the first big technology firm facing serious backlash for its impact on society, after a year of criticism over its handling of private data, its distribution of misinformation and hateful content, and its alleged suppression of political views. Google also began to face criticism over its market power; it was fined $5 billion by the European Union over antitrust issues relating to its Android operating system. To be sure, both of these businesses profited handsomely from their huge scale, but there appear to be costs to this bigness after all — some of which ultimately hurt the businesses themselves.


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