The Monopoly Effect


Global Intel Hub 12/20/2021 -- Charlotte, NC --  Monopolies are a common theme in many of our intel articles because they impact markets and the economy in such a big way.  Other than the US Government, Monopolies are the next most impactful organizations in the world, followed by NGOs like the World Bank and the World "Health" Organization.  We've noted that many Monopolies in any sector have similar traits, and thus feel compelled to explore potential toxic elements of Monopolies especially as far as markets are concerned.  When we speak of Wall St. we all know the "TBTF" Too Big Too Fail status, but what does that really mean?  It's the same in Big Tech, and other sectors - it's not only big zombie banks.  We wonder, for example, how a bank like Bank of America (BAC) continues to operate with such an abhorrent customer service record, lack of understanding of the financial system, and lack of innovation.  The answer is size.  As companies grow, they reach a critical mass we will call "Monopoly" - they may not be Monopolies as defined by the Sherman Anti-Trust act as Monopolies [1], which is anyhow an ancient and useless definition today (as there are easy circumventions to the rule as it was written) --

Approved July 2, 1890, The Sherman Anti-Trust Act was the first Federal act that outlawed monopolistic business practices. The Sherman Antitrust Act of 1890 was the first measure passed by the U.S. Congress to prohibit trusts. ... Several states had passed similar laws, but they were limited to intrastate businesses.

When companies reach "Monopoly" status they become paradoxically a self-policing, self-referencing force.  How many US natural persons, senators, legislators at state and federal levels have BAC, AMZN and others in their 401ks?  While big Wall St. banks have themselves become Monopolies as alluded to here, they offer access to other Monopolies via the stock market.  Therefore, the success of the Monopolies becomes the success of Main St. and Joe 6 pack.  Workers from AMZN have billion dollar positions in BAC, and so it goes.

Not only a Monopoly becomes too big to fail, it becomes too big to breakup, too big to be punished, too big to regulate.  They end up 'regulating' themselves.

Growth industries follow the laws and become big and powerful and end up hiring lobbyists and making the laws.  Most recently it was Big Tech, previously it was Pharma, Energy, Industrials, Utilities, ad infinitum.. The paradox here is that as startups, companies take risk and act like entrepreneurs (or day traders if you will) and as they grow, the Monopoly Effect kicks in and they start acting like Monopolies - hedging risk, and finally the brain killer - deleting risk.  It's possible if you have enough money and power to eliminate risk from your business - buy the competitor.

Look at how profitable war is if you finance both sides.  In any economic theater, game theory applies.  Monopolies don't manage risk, they eat risk - literally.

Monopolies look to form cartels, and do - just as the Oil industry formed OPEC.  At that point, whether the industry is FX, Oil, or Social Media - the behavior is the same:

  • Price fixing
  • Racketeering
  • Political corruption
  • Investment in protecting the status quo vs. growth & development

The last point may not seem so bad but all of these behaviors are toxic to the economy, to the consumer, and to the companies themselves.

We're not presenting a cure nor suggesting a call to activism, however investors should note that when you are a Monopoly, there is little good you can do to move the needle for next quarter.  Big companies like Wells Fargo (WFC) may depend on fraudulent practices to drive profits, because of the Monopoly Effect.  Otherwise what is the explanation for Wells continued involvement in scam after scam over a period of years:

The Wells Fargo account fraud scandal is a controversy brought about by the creation of millions of fraudulent savings and checking accounts on behalf of Wells Fargo clients without their consent. News of the fraud became widely known in late 2016 after various regulatory bodies, including the Consumer Financial Protection Bureau (CFPB), fined the company a combined US$185 million as a result of the illegal activity. The company faces additional civil and criminal suits reaching an estimated $2.7 billion by the end of 2018.[1] The creation of these fake accounts continues to have legal and financial ramifications for Wells Fargo and former bank executives as of early 2021.[2]

Or to bring it down to a markets based scam perpetrated by a cartel, let's look at once slice of the Forex Scandal pie.  Here, it clearly was not a 'rogue manager' as Wells admitted to lying, providing false information, and overcharging customers - according to DOJ [3]:

For the better part of a decade, Wells Fargo abused this trust, using tricks, false information, and other deceptive practices to fraudulently overcharge customers who used the Bank’s foreign exchange service. ... For example, instead of applying agreed-upon fixed spreads to customers’ outgoing wires, FX sales specialists would charge inflated spreads that were as large as the FX sales specialists thought they could get away with. Furthermore, rather than charging the agreed-upon fixed spread to the FX market rate at the time the outgoing wire was converted, FX sales specialists would select the best rate for the Bank and worst rate for the customer from the FX price fluctuations from the beginning of the trading day until the time of the transaction. This practice was referred to internally as “Range of Day” Pricing.

What's even more shocking is that after hundreds of fines by multiple regulators internationally, the banks continue the same practice!  This is a bright example of the Monopoly Effect - they are incapable of doing something else, they are incapable of inventing.  Bank of America (BAC) has tons of Blockchain patents - but why didn't they start Coinbase?  Because the Monopoly Effect acts as an impenetrable barrier between organizations and intelligence.

And finally - the ultimate irony is that many who run Monopolies may be aware of this.  Many entrepreneurs who found future Monopolies are aware of this, like Steve Jobs was.  Finally, Jobs got fired from his own company and then re-hired.  Yet they are incapable to do anything about it happening, it just comes like waves of social pressure backed by billions of dollars or powerful influences.

For more great articles like this checkout Global Intel Hub (Markets Intelligence) – by or Checkout our Blogs Thought2Go – Memes and Fun – Pre IPO Swap – Pre IPO Markets




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