Megabrands – So what?

J Brauer | © Stone Garden Economics

Have a look at these graphics (here), which recently came to me via a facebook posting. They show interesting information, I agree, about the number of brands owned by a few major global corporations. For example, what do the following brands all have in common: Audi, Lamborghini, Bentley, Bugatti, Porsche, Ducatti, MAN, Scania, Seat, Skoda, Suzuki, Volkswagen (commercial and passenger vehicles)? All are motor vehicles of course — and all are owned by the Volkswagen Group. (VW owns 19.9% of Suzuki and is the biggest shareholder, thus able to set corporate direction.) So, the VW Group is a megabrand. Louis Vuitton, Nestle, Mars, Coca-Cola, P&G, Unilever, GE, Disney, Viacom, Delta and American Airlines, Heineken and Diageo in the drinks department, etc. etc. are other examples of conglomerates owning the rights to major multiple brands.

Ok, I get the point: Relatively few conglomerates own most of the big global brands.

So what?

In banking, the graphic claims that “Our money is all in the hands of a few megacorporations, too … according to MotherJones, 54% of all the financial assets in the United States are owned by just 10 institutions.” Humbug: My money in my bank is my money, not my bank’s money. My bank does not “own” my money. Moreover, in the United States, there are in fact nearly 7,000 banks. Granted, this is way down from about 18,000 or so 30 years before but still plenty of choice. If you choose to bank with Wells Fargo or Bank of America that’s your problem, not the banks’ problem. Personally, I bank with a credit union, which is member-owned, not corporate-owned. I suggest you do the same, and pay a lower interest rate on loans, and get a higher rate on your savings.

But we all need to drive cars, right? Alright, so you do have the VW Group. But you also have Tata (which owns Daewoo and Jaguar as well as the Tata car brand), Renault/Nissan, Peugeot, Daimler, BMW, Ford, Honda, Toyota, Fiat, and many others. Still very much plenty to choose from. A handful of hotel corporations own most of the brands, true, but there are plenty of alternatives in the bed & breakfast and hostel markets, and often they are very good and inexpensive choices indeed. And who needs Snicker bars (Mars) or Oreo cookies (Mondelez International) or colored-sugar water (Coke, Pepsi) anyway? KFC, Taco Bell, and Pizza Hut are under the YumBrands empire but if you are the type who complains about megacorporations ruling the world, you probably should not eat fast food anyway.

But apart from consolidation by means of mergers and acquisitions (M&A) of many independent brands into relatively few (but still plenty) of competing brand-owning conglomerates, what else is going on? The graphics I referred to implicitly send the message (and, in banking, explicitly) that “big is bad.” But is it? In economics, we teach the virtues of economies of scale and scope. Size and variety reduces costs of sourcing, making, and distributing and, so long as conglomerates’ feet are held to the competitive fire, the cost savings are passed on to buyers. Compare, for instance, the end-user price of an average automobile (relative to average income) 20, 50, or 80 years ago the the end-user price of a car today. No question, I’d rather buy a car today: It’s far cheaper and it’s far better, in large part because economies of scale and scope allow auto manufacturers to spread fixed costs of research & development and automotive plants and advertising and promotion over an ever larger number of vehicles.

But doesn’t “big business” circumvent competition? Perhaps, but is that the fault of big business or is it the fault of bad public policy, bad enforcement of the law, and bad voting by voters?

You need to understand that because competition forces you to offer better products and service at a keener price, competition is bad for you. If I were the only economics professor in the world, I’d love the million dollars I could charge per lecture.  But competition from other professors forces me to moderate my greed and improve my teaching and research. NO ONE — as a supplier of labor or as a supplier of goods and services — WANTS COMPETITION. But as buyers (demanders), we all want competition. Thus, while the supply side of the market may always be expected to collude to limit competition, the demand side of the market, and especially households as voters, should also be expected to vote for politicians that set and enforce pro-competition law.

The lesson? Next time you see terrifying corporate conglomerate charts, inspect your own purchasing behavior, seek and favor alternative suppliers, and improve your voting behavior.

J Brauer is Professor of Economics, James M. Hull College of Business, Georgia Regents University, Augusta, Georgia, USA.

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