The Prejudice Against Bigness

It would be reasonable enough to argue that there is an almost-instinctive distrust of "bigness" in business, as such bigness is presumed to be responsible for destroying the fortunes of small and local businesses.

It must also be said that it is consumers who propel the rise of "big businesses," since it is consumers who prefer the products, prices or other attributes of bigger businesses, over those of smaller suppliers.

We might be tempted to decry bigness, but consumer choice is what produces bigness. And that means bigness is not always and inevitably bad.

Sometimes, in fact, bigness might be a survival requirement. Consider some foundations of business in the internet era. Among the key trends are a few that define internet market dynamics:

* Pricing and margin pressure
* New competitors from outside the existing value chain
* Winner take all market share dynamics
* Disintermediation of distributors in the value chain

In case you somehow missed the trend, the internet leads to lower retail prices and lower supplier profits, as price transparency increases and distributors are removed from the value chain. 

Faced with lower retail prices, suppliers can respond in a few ways. They can sell more units at the lower prices, which requires more scale. Firms can sell different products, which means moving into new or different parts of the value chain. And firms can take on additional roles within value chains, increasing the ways they make revenue. 

The point is that all that tends to imply firms get bigger. 

Also, the internet allows firms outside the existing industries, possibly operating with different value and revenue models, to enter existing businesses and disrupt them. That creates additional pressure on sales volume, prices and profits. 

Market disruptors also frequently rely on internet capabilities to remove cost from the value chain by eliminating steps and roles in the distribution process, also after changing costs in the production part of the value chain. 

The "winner take all" nature of many internet-reliant businesses and industries also contributes to bigness. 

So we need to be careful not to confuse bigness, which might well be a requirement for firm or industry survival, with actual anti-competitive behavior on the part of big firms. Abuse always is a possibility when power exists in a market. But abuse is not automatic, and hopefully not a routine outcome.

Nor should we automatically penalize firms for delivering higher quality products at lower prices. That is the outcome we are supposed to gain from competition. 

But sometimes competition can only be fostered by big firms. Break up the big firms and you also possibly destroy ability to innovate and create even more consumer benefits. 

Bigness is not inherently bad. 


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