As big companies grow, the economy becomes more difficult to manage


Increased M & A and impact on competitive demand strengthens scrutiny

News analysis

Large companies are strengthening their economic advantage over small and medium-sized companies in the pandemic, and M & A (M & A) is increasing. These developments pose additional obstacles for federal agencies such as the Bank of Canada and the Canadian Competition Bureau to carry out their missions.

Large companies tend to have greater pricing power, greater profits, and are less sensitive to external funding terms. They can also engage in anti-competitive behavior.

The International Monetary Fund (IMF) said: July 21st Blog officer.

The IMF added that SMEs, which usually have more difficulty in financing and lower profit margins, are much more sensitive to central bank interest rate adjustments than large companies.

As inflation pockets permeate the economy, more questions have arisen as to when banks in Canada will begin to raise interest rates, support financial markets and stop buying bonds to lower long-term interest rates.

But the potential problem is that greater market power, the ability to mark prices above competitive levels, raises interest rates more aggressively than in a more competitive economy. It means that you need to. And low-markup companies and highly competitive industries will be disproportionately hit and endanger economic recovery.

This isn’t a new issue for central banks, but it’s especially exacerbated by the prosperous pandemics of tech giants.

Carolyn Wilkins, a former senior vice president of the Bank of Canada, previously said market power should be curtailed, especially with regard to tech giants and their monopoly behavior.

“Telephone companies are a traditional example, and social media companies and online marketplaces are more modern examples.” Wilkins Said at the 2018 G7 Symposium.

“What’s new is that user data is another source of monopoly power, so the effect of” winners are everything “is expanding in the digital economy. “She said.

“The degree of income inequality affects the transmission of monetary policy.” Wilkins Said in the 2019 presentation at the G7. Wealthy, low-debt individuals, such as large corporations, are less sensitive to changes in borrowing costs than small businesses and high-debt households.

Both the IMF and Wilkins said excessive market power could hinder growth, innovation and business investment.

“Big tech companies are a good example. The market turmoil that ousted existing companies 20 years ago is becoming an increasingly dominant player, not facing the same competitive pressures as those who could cause turmoil today. IMF says. March 15th Blog Post..

The IMF sees business dynamism tending to decline as the recovery from the pandemic slows.

“M & A can reduce costs and produce better products, but it can also weaken incentives for innovation and strengthen the ability of companies to charge higher prices,” said the IMF.

Both the BoC and the IMF advocate tighter control over M & A and modernization of antitrust frameworks and competition policy.

The purpose is to intensify competition in developed countries and level the competition for SMEs.

Busy competition watchdog

PwC Canada After a substandard year in 2020, we expect 2021 to be a busy year for M & A. For small and medium-sized businesses in need, they are more likely to be acquired.

The Canadian Competition Bureau told the Epoch Times that during the 2020-21 fiscal year, M & A activity declined and the number of reviews conducted was “significantly lower than in the previous year.” However, in the first four months of fiscal year 2021-22 alone, we completed 76 merger reviews, already surpassing the 72 merger reviews conducted in the first six months of fiscal year 2020-21.

For example, the agency is currently investigating proposed proposals. $ 26 billion acquisition By Rogers of the show, and it’s also in the ongoing investigation AmazonLaunched in 2020, to determine if the website is intensifying competition in Canada.

“law [Competition Act] James Albert, a senior communications adviser to the Competition Bureau, told The Epoch Times. “If market power is gained by other means, such as anti-competitive practices, agreements, mergers, etc., the Department can and will investigate.”

One of the potential consequences of M & A is that the acquirer will increase its markup, Wilkins said in a 2019 presentation.

Recently IMF research Global price markup has been shown to have risen by an average of more than 30% in developed countries and twice as fast in the digital sector since 1980.

“Policymakers need to act now to prevent further spikes in market power that could impede recovery.” IMF Said.

The IMF said competition authorities may need to invest to further enhance their sector-specific expertise amid rapid technological changes.

“COVID-19 made small shopping difficult,” he said. Canada Independent Business Federation In a June 28 poll statement, 60% of consumers said they spend less on small businesses and more on large box stores and online giants during a pandemic.

Rahul Vaidyanath

Rahul Vaidyanath


Rahul Vaidyanath is a journalist in The Epoch Times of Canada. His areas of expertise include economics, financial markets, China, and defense and security. He has worked at the Bank of Canada, Canada Mortgage and Housing Corp., and investment banks in Toronto, New York, and Los Angeles.