As described in the last section, due to the nature of the capitalist market, large firms soon come to dominate. Once a few large companies dominate a particular market, they form an oligopoly from which a large number of competitors have effectively been excluded, thus reducing competitive pressures. In this situation there is a tendency for prices to rise above what would be the "market" level, as the oligopolistic producers do not face the potential of new capital entering "their" market (due to the relatively high capital costs and other entry/movement barriers). This form of competition results in Big Business having an "unfair" slice of available profits as oligopolistic profits are "created at the expense of individual capitals still caught up in competition." [Paul Mattick, Economics, Politics, and the Age of Inflation, p. 38]
As argued in section C.1, the price of a commodity will tend towards its production price (which is costs plus average profit). In a developed capitalist economy it is not as simple as this — there are various "average" profits depending on what Michal Kalecki termed the "degree of monopoly" within a market. This theory "indicates that profits arise from monopoly power, and hence profits accrue to firms with more monopoly power. . . A rise in the degree of monopoly caused by the growth of large firms would result in the shift of profits from small business to big business." [Malcolm C. Sawyer, The Economics of Michal Kalecki, p. 36] Thus a market with a high "degree of monopoly" will have a higher average profit level (or rate of return) than one which is more competitive.
The "degree of monopoly" reflects such factors as level of market concentration and power, market share, extent of advertising, barriers to entry/movement, collusion and so on. The higher these factors, the higher the degree of monopoly and the higher the mark-up of prices over costs (and so the share of profits in value added). Our approach to this issue is similar to Kalecki's in many ways although we stress that the degree of monopoly affects how profits are distributed between firms, not how they are created in the first place (which come, as argued in section C.2, from the "unpaid labour of the poor" — to use Kropotkin's words).
There is substantial evidence to support such a theory. J.S Bain in Barriers in New Competition noted that in industries where the level of seller concentration was very high and where entry barriers were also substantial, profit rates were higher than average. Research has tended to confirm Bain's findings. Keith Cowling summarises this later evidence:
"[A]s far as the USA is concerned. . . there are grounds for believing that a significant, but not very strong, relationship exists between profitability and concentration. . . [along with] a significant relationship between advertising and profitability [an important factor in a market's "degree of monopoly"]. . . [Moreover w]here the estimation is restricted to an appropriate cross-section [of industry] . . . both concentration and advertising appeared significant [for the UK]. By focusing on the impact of changes in concentration overtime . . . [we are] able to circumvent the major problems posed by the lack of appropriate estimates of price elasticities of demand . . . [to find] a significant and positive concentration effect. . . It seems reasonable to conclude on the basis of evidence for both the USA and UK that there is a significant relationship between concentration and price-cost margins." [Monopoly Capitalism, pp. 109-110]
We must note that the price-cost margin variable typically used in these studies subtracts the wage and salary bill from the value added in production. This would have a tendency to reduce the margin as it does not take into account that most management salaries (particularly those at the top of the hierarchy) are more akin to profits than costs (and so should not be subtracted from value added). Also, as many markets are regionalised (particularly in the USA) nation-wide analysis may downplay the level of concentration existing in a given market.
This means that large firms can maintain their prices and profits above "normal" (competitive) levels without the assistance of government simply due to their size and market power (and let us not forget the important fact that Big Business rose during the period in which capitalism was closest to "laissez faire" and the size and activity of the state was small). As much of mainstream economics is based on the idea of "perfect competition" (and the related concept that the free market is an efficient allocator of resources when it approximates this condition) it is clear that such a finding cuts to the heart of claims that capitalism is a system based upon equal opportunity, freedom and justice. The existence of Big Business and the impact it has on the rest of the economy and society at large exposes capitalist economics as a house built on sand (see sections C.4.2 and C.4.3).
Another side effect of oligopoly is that the number of mergers will tend to increase in the run up to a slump. Just as credit is expanded in an attempt to hold off the crisis (see section C.8), so firms will merge in an attempt to increase their market power and so improve their profit margins by increasing their mark-up over costs. As the rate of profit levels off and falls, mergers are an attempt to raise profits by increasing the degree of monopoly in the market/economy. However, this is a short term solution and can only postpone, but stop, the crisis as its roots lie in production, not the market (see section C.7) — there is only so much surplus value around and the capital stock cannot be wished away. Once the slump occurs, a period of cut-throat competition will start and then, slowly, the process of concentration will start again (as weak firms go under, successful firms increase their market share and capital stock and so on).
The development of oligopolies within capitalism thus causes a redistribution of profits away from small capitalists to Big Business (i.e. small businesses are squeezed by big ones due to the latter's market power and size). Moreover, the existence of oligopoly can and does result in increased costs faced by Big Business being passed on in the form of price increases, which can force other companies, in unrelated markets, to raise their prices in order to realise sufficient profits. Therefore, oligopoly has a tendency to create price increases across the market as a whole and can thus be inflationary.
For these (and other) reasons many small businessmen and members of the middle-class wind up hating Big Business (while trying to replace them!) and embracing ideologies which promise to wipe them out. Hence we see that both ideologies of the "radical" middle-class — Libertarianism and fascism — attack Big Business, either as "the socialism of Big Business" targeted by Libertarianism or the "International Plutocracy" by Fascism.
As Peter Sabatini notes in Libertarianism: Bogus Anarchy, "[a]t the turn of the century, local entrepreneurial (proprietorship/partnership) business [in the USA] was overshadowed in short order by transnational corporate capitalism. . . . The various strata comprising the capitalist class responded differentially to these transpiring events as a function of their respective position of benefit. Small business that remained as such came to greatly resent the economic advantage corporate capitalism secured to itself, and the sweeping changes the latter imposed on the presumed ground rules of bourgeois competition. Nevertheless, because capitalism is liberalism's raison d'etre, small business operators had little choice but to blame the state for their financial woes, otherwise they moved themselves to another ideological camp (anti-capitalism). Hence, the enlarged state was imputed as the primary cause for capitalism's 'aberration' into its monopoly form, and thus it became the scapegoat for small business complaint."
However, despite the complaints of small capitalists, the tendency of markets to become dominated by a few big firms is an obvious side-effect of capitalism itself. "If the home of 'Big Business' was once the public utilities and manufacturing it now seems to be equally comfortable in any environment." [M.A. Utton, Op. Cit., p. 29] This is because in their drive to expand (which they must do in order to survive), capitalists invest in new machinery and plants in order to reduce production costs and so increase profits (see section C.2 and related sections). Hence a successful capitalist firm will grow in size over time and squeeze out competitors.