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Tuesday, 3 May 2011

The free market leads in general to concentration of power; not division! Therefore strong government regulation and supervision always remains necessary to create a ‘level playing field’.

‘Taco Bell was the only restaurant to survive the Franchise Wars. Now all restaurants are Taco Bell’.

The movie ‘Demolition Man ‘, starring Sylvester Stallone, Wesley Snipes and Sandra Bullock, although very funny, wasn’t a movie of much depth. But the quote about the Taco Bell (Pizza Hut in some other countries) stuck with me through the years since I first saw it.

This morning, I was thinking about this quote when I heard that Nasdaq had provided a hostile takeover-bid for NYSE Euronext in Europe. Whether NYSE Euronext is taken over by Deutsche Börse of Frankfurt, Germany or by the Nasdaq group doesn’t matter at all. The result will be the same: a monster complex of stock exchanges that will crush the competition on prices and possibilities to handle IPO’s of large companies in Europe and America.

And I am certain that this takeover will lead to a new flow of takeovers: either from the post-merger stock exchange or from its main competition.

Who will win? Probably the very large banks, like Goldman Sachs, Deutsche Bank, UBS or Citigroup that can enter into exclusive deals with the new stock exchange and with that get rid of the competition.

Who will lose? Of course the small and medium corporate customers, the traders and the private investors. When there is ample competition, the prices will remain low, the service will remain good and the conditions will remain flexible. However, when there is a concentration of power, the customer can scr*w themselves if they want better conditions, lower prices or better handling.

Is this a bullshit story? Well, if you think, please look at:
·         Apple with the I-tunes stores, forcing you to buy your music and apps there, if you own a iPod, iPad, iPhone or iEverything.
·         Coca Cola and Pepsi, taking over all small beverage companies in emerging markets like Russia, China and India
·         McDonalds,Burger King and … Taco Bell, getting rid of all other small restaurant chains that cannot compete on the efficiency of their formula, but can on the quality of their food.
·         Microsoft with the Windows platform
·         Facebook, Ebay and of course Google
·         General Motors, Ford and Chrysler in the good old days.
·         Large health insurance companies in Europe and the USA

Were/are those flexible and high-quality delivering firms that put the customer on a pedestal and delivered the best quality for reasonable prices? Really? They were probably before they got their large share of the market.

But after they got their share, all the above mentioned firms were busy getting rid of their competition, one way or another and putting harsh contracts and conditions on their customers. To give you an example of these contracts: please don’t read the license conditions of Microsoft, Adobe, Apple and other large software firms. You could become angry if your read them in full.

And I'm sure that the free market reinforces this phenomena, instead of stopping it. The fittest will survive and the weak, but promising companies will be eaten, before they reach adulthood.

The fact is that large companies with a significant share of the total market start to behave like black holes in the universe: they suck up the other stars (other companies)– one by one- until they become so heavy, that literally nothing can escape from it. The only institutions that then can break the power and strength of those black holes are governments of strong countries (USA) or unions of countries (EU, NAFTA)

Therefore, what I am going to say now, seems like swearing in church, but surely isn´t: it is good that there are strong governmental organizations , like the European Commission for Competition and Internal market or the US anti-kartel bureau´s that can keep the competition alive and can make sure that there is a level playing field for all competitors.

And it is also my opinion that those governmental organization can do so much more to protect small, innovative companies from the behemoths with the large market shares.

So is Nasdaq NYSE Euronext a good idea? You bet, it isn´t. And you can tell everybody that I said so.

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