"The facts show. . .that capitalist economies tend over time and with some interruptions to become more and more heavily concentrated." [M.A. Utton, The Political Economy of Big Business, p. 186] The dynamic of the "free" market is that it tends to becomes dominated by a few firms (on a national, and increasingly, international, level), resulting in oligopolistic competition and higher profits for the companies in question (see next section for details and evidence). This occurs because only established firms can afford the large capital investments needed to compete, thus reducing the number of competitors who can enter or survive in a given the market. Thus, in Proudhon's words, "competition kills competition." [System of Economical Contradictions, p. 242]
This "does not mean that new, powerful brands have not emerged [after the rise of Big Business in the USA after the 1880s]; they have, but in such markets. . . which were either small or non-existent in the early years of this century." The dynamic of capitalism is such that the "competitive advantage [associated with the size and market power of Big Business], once created, prove[s] to be enduring." [Paul Ormerod, The Death of Economics, p. 55]
For people with little or no capital, entering competition is limited to new markets with low start-up costs ("In general, the industries which are generally associated with small scale production. . . have low levels of concentration" [Malcolm C. Sawyer, The Economics of Industries and Firms, p. 35]). Sadly, however, due to the dynamics of competition, these markets usually in turn become dominated by a few big firms, as weaker firms fail, successful ones grow and capital costs increase — "Each time capital completes its cycle, the individual grows smaller in proportion to it." [Josephine Guerts, Anarchy: A Journal of Desire Armed no. 41, p. 48]
For example, between 1869 and 1955 "there was a marked growth in capital per person and per number of the labour force. Net capital per head rose. . . to about four times its initial level. . . at a rate of about 17% per decade." The annual rate of gross capital formation rose "from $3.5 billion in 1869-1888 to $19 billion in 1929-1955, and to $30 billion in 1946-1955. This long term rise over some three quarters of a century was thus about nine times the original level." [Simon Kuznets, Capital in the American Economy, p. 33 and p. 394, constant (1929) dollars] To take the steel industry as an illustration: in 1869 the average cost of steel works in the USA was $156,000, but by 1899 it was $967,000 — a 520% increase. From 1901 to 1950, gross fixed assets increased from $740,201 to $2,829,186 in the steel industry as a whole, with the assets of Bethlehem Steel increasing by 4,386.5% from 1905 ($29,294) to 1950 ($1,314,267). These increasing assets are reflected both in the size of workplaces and in the administration levels in the company as a whole (i.e. between individual workplaces).
With the increasing ratio of capital to worker, the cost of starting a rival firm in a given, well-developed, market prohibits all but other large firms from doing so (and here we ignore advertising and other distribution expenses, which increase start-up costs even more - "advertising raises the capital requirements for entry into the industry" — Sawyer, Op. Cit., p. 108). J.S Bain (in Barriers in New Competition) identified three main sources of entry barrier: economies of scale (i.e. increased capital costs and their more productive nature); product differentiation (i.e. advertising); and a more general category he called "absolute cost advantage."
This last barrier means that larger companies are able to outbid smaller companies for resources, ideas, etc. and put more money into Research and Development and buying patents. Therefore they can have a technological and material advantage over the small company. They can charge "uneconomic" prices for a time (and still survive due to their resources) — an activity called "predatory pricing" — and/or mount lavish promotional campaigns to gain larger market share or drive competitors out of the market. In addition, it is easier for large companies to raise external capital, and risk is generally less.
In addition, large firms can have a major impact on innovation and the development of technology — they can simply absorb newer, smaller, enterprises by way of their economic power, buying out (and thus controlling) new ideas, much the way oil companies hold patents on a variety of alternative energy source technologies, which they then fail to develop in order to reduce competition for their product (of course, at some future date they may develop them when it becomes profitable for them to do so). Also, when control of a market is secure, oligopolies will usually delay innovation to maximise their use of existing plant and equipment or introduce spurious innovations to maximise product differentiation. If their control of a market is challenged (usually by other big firms, such as the increased competition Western oligopolies faced from Japanese ones in the 1970s and 1980s), they can speed up the introduction of more advanced technology and usually remain competitive (due, mainly, to the size of the resources they have available).
These barriers work on two levels - absolute (entry) barriers and relative (movement) barriers. As business grows in size, the amount of capital required to invest in order to start a business also increases. This restricts entry of new capital into the market (and limits it to firms with substantial financial and/or political backing behind them):
"Once dominant organisations have come to characterise the structure of an industry, immense barriers to entry face potential competitors. Huge investments in plant, equipment, and personnel are needed. . . [T]he development and utilisation of productive resources within the organisation takes considerable time, particularly in the face of formidable incumbents . . . It is therefore one thing for a few business organisations to emerge in an industry that has been characterised by . . . highly competitive conditions. It is quite another to break into an industry. . . [marked by] oligopolistic market power." [William Lazonick, Business Organisation and the Myth of the Market Economy, pp. 86-87]
Moreover, within the oligopolistic industry, the large size and market power of the dominant firms mean that smaller firms face expansion disadvantages which reduce competition. The dominant firms have many advantages over their smaller rivals — significant purchasing power (which gains better service and lower prices from suppliers as well as better access to resources), privileged access to financial resources, larger amounts of retained earnings to fund investment, economies of scale both within and between workplaces, the undercutting of prices to "uneconomical" levels and so on (and, of course, they can buy the smaller company — IBM paid $3.5 billion for Lotus in 1995. That is about equal to the entire annual output of Nepal, which has a population of 20 million). The large firm or firms can also rely on its established relationships with customers or suppliers to limit the activities of smaller firms which are trying to expand (for example, using their clout to stop their contacts purchasing the smaller firms products).
Little wonder Proudhon argued that "[i]n competition. . . victory is assured to the heaviest battalions." [Op. Cit., p. 260]
As a result of these entry/movement barriers, we see the market being divided into two main sectors — an oligopolistic sector and a more competitive one. These sectors work on two levels — within markets (with a few firms in a given market having very large market shares, power and excess profits) and within the economy itself (some markets being highly concentrated and dominated by a few firms, other markets being more competitive). This results in smaller firms in oligopolistic markets being squeezed by big business along side firms in more competitive markets. Being protected from competitive forces means that the market price of oligopolistic markets is not forced down to the average production price by the market, but instead it tends to stabilise around the production price of the smaller firms in the industry (which do not have access to the benefits associated with dominant position in a market). This means that the dominant firms get super-profits while new capital is not tempted into the market as returns would not make the move worthwhile for any but the biggest companies, who usually get comparable returns in their own oligopolised markets (and due to the existence of market power in a few hands, entry can potentially be disastrous for small firms if the dominant firms perceive expansion as a threat).
Thus whatever super-profits Big Business reap are maintained due to the advantages it has in terms of concentration, market power and size which reduce competition (see section C.5 for details).
And, we must note, that the processes that saw the rise of national Big Business is also at work on the global market. Just as Big Business arose from a desire to maximise profits and survive on the market, so "[t]ransnationals arise because they are a means of consolidating or increasing profits in an oligopoly world." [Keith Cowling and Roger Sugden, Transnational Monopoly Capitalism, p. 20] So while a strictly national picture will show a market dominated by, say, four firms, a global view shows us twelve firms instead and market power looks much less worrisome. But just as the national market saw a increased concentration of firms over time, so will global markets. Over time a well-evolved structure of global oligopoly will appear, with a handful of firms dominating most global markets (with turnovers larger than most countries GDP — which is the case even now. For example, in 1993 Shell had assets of US$ 100.8 billion, which is more than double the GDP of New Zealand and three times that of Nigeria, and total sales of US$ 95.2 billion).
Thus the very dynamic of capitalism, the requirements for survival on the market, results in the market becoming dominated by Big Business ("the more competition develops, the more it tends to reduce the number of competitors." [P-J Proudhon, Op. Cit., p. 243]). The irony that competition results in its destruction and the replacement of market co-ordination with planned allocation of resources is one usually lost on supporters of capitalism.