The Concentration of Economic Power

Abstract

Most economists define market power as the ability to control price and exclude rivals.1 In turn, economic power is often assumed to be essentially the same as market power, but this equivalence raises serious problems. Real world economic power encompasses much more than market power, despite efforts by many economists to ignore the distinction. For example, a recent article in Forbes voluminously reports on the economic power of General Electric Corporation without ever even mentioning the company’s market power in jet engines or television broadcasting. It states that during the first six years of the 1980s GE changed dramatically, reshuffling its “...corporate portfolio like a riverboat gambler, acquiring 338 business and product lines for $11.1 billion”: Nothing like this has been seen in corporate America since the conglomerator days of LTV’s Jimmy Ling and Gulf & Western’s Charles Bluhdorn. With GE, it’s a case of enormous financial might, coupled with the readiness to acquire—or to dump. Says one former GE official, “This company is prepared to buy or sell any business, depending on how it fits into its overall strategy.”2