I was challenged with providing a glossary for some of the more problematic words that appear in this book but for many of them their wide adoption has been driven, in part, by the fact that they have proven to be so malleable in meaning – the context, for these words, is everything, and meaning lies both with the writer and with the reader.
I was not sure I could attempt to pin down the definitions of these slippery words so I have landed on a compromise. I provide below a simplistic definition of some words, something that captures what I mean when I use the words in this book. But then, for those who want to know more and come to their own definitions, I have suggested some further sources. The list of further reading provided separately would also further inform the meanings of these words.
This refers to the law and policy tools used to challenge corporate power.
The meaning of the word ‘antitrust’ has shifted over the last century and a half. Antitrust usually refers to the law ‒ and enforcement of the law ‒ that targets big business, following the enactment of the Sherman Act in 1890, but I use it to describe the containment of corporate power through other legal and policy tools as well (such as through corporate law).
In Europe and in most other jurisdictions in the world, this type of regulation is called ‘competition law’, or ‘competition policy’, as it concerns itself with the maintenance of competitive markets Competition law has a long history, predating the Sherman Act, with forms of competition law present in Roman law and in Medieval England. But most modern competition laws – and there are such laws on the statute books right across the world – are based on the US model.
I use ‘antitrust’ and ‘competition law’ interchangeably in this book ‒ often preferring the former, as the word ‘competition’ is itself problematic (see definition of Competition).
See Chapter 4 for a brief history of antitrust, or for more detail see Tim Wu’s The Curse of Bigness: Antitrust in the New Gilded Age, Matt Stoller’s Goliath: The 100-Year War Between Monopoly Power and Democracy or my article ‘Powerless Antitrust’ (Competition Policy International, 7 November 2019).
A school of economic thought based around Neoclassical economics and Neoliberalism.
The rivalry between suppliers in the market as they strive to get customers to buy from them.
Chapter 1 explains why this word is so tricky, and how it has morphed from being used to describe the textbook paradigm of a market with many small sellers and buyers to increasingly being applied to concentrated markets with just a few big sellers or buyers.
For a technical discussion of the use of the word ‘competition’ for ideological purposes, see Sanjukta Paul’s article, ‘Antitrust As Allocator of Coordination Rights’ (UCLA Law Review, 2020).
See Antitrust.
Market concentration relates to the number of economic players, companies or firms in a market and their relative market shares. A concentrated market is one in which a few companies have large market shares. An unconcentrated market is one in which there are many small players, each with low market share.
Market concentration is sometimes analysed using the ‘concentration ratio’. For example, if a market has a four-firm concentration ratio of 80 per cent (or a CR4 of 80) then it means that the four largest firms have combined market shares of 80 per cent. An alternative measure of concentration is the Hirfindahl-Herschman Index (or HHI), which is calculated as the sum of the squares of the individual market shares of each firm in the market.
This can refer to many different things. In economics, it is often used as a shorthand for ‘Pareto efficiency’, which describes an allocation of economic resources according to people’s preferences under which no person could be made better off without making anyone else worse off.
‘Pareto efficiency’ is an umbrella term, under which sit specific aspects of efficiency such as ‘allocative efficiency’ (the right amount of resources are allocated to those who most want them) and ‘productive efficiency’ (the market produces things using the least possible resources).
Perfectly competitive markets are a necessary condition for ‘Pareto efficiency’ to arise.
As this book hopefully demonstrates, there are many things that matter to human welfare that are not captured by the simplistic economic concept of efficiency.
See any introductory economics textbook or Wikipedia for the basic definition, but see also Kate Raworth’s Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist or Rethinking Economics: An Introduction to Pluralist Economics for modern theories of economics that go well beyond the concept of ‘efficiency’.
An externality – or ‘spillover’ ‒ of a market transaction is an effect on third parties that derives from that transaction but which is not accounted for by the parties to that transaction (for example, the effect is not reflected in the market price). Externalities can be negative – such as pollution resulting from the burning of fossil fuels or the sale of a car (which is not factored into the price of the oil or of the car). Externalities can also be positive – such as the positive effect on society of an individual’s decision to invest in their education. Economic theory predicts that the market will overproduce goods with negative externalities and underproduce goods with positive externalities.
A company is said to hold a monopoly position in a market if they dominate the sale of goods or services in that market. Unlike a firm in a competitive market, a monopolist has the ability to raise prices and restrict output so that they can earn higher profits than under conditions of competition.
A pure monopoly is extremely rare – this would be the situation where there is a single seller and no competitors. Generally, a monopolist will still face some competitors, but the question is how much of a competitive restraint these other firms present for the pricing and output decisions of the monopolist. A market is treated as a natural monopoly when features of the industry require such a large scale of operations that the market will only accommodate a few firms.
Different legal systems have different thresholds for when a company is deemed to have a monopoly – it can be with a market share of 40 per cent in Europe or as high as 70 per cent in the US.
This is the mirror image of monopoly. Whereas monopoly refers to the dominance of a seller in a product market – for example, the market for groceries – monopsony designates a firm with dominance as a buyer of inputs – for example, a grocery store may have monopsony power over farmers or food processors.
See Monopoly.
A theory of economics that uses the concepts of supply and demand in the markets as the principal way of explaining how the economy works and why we end up with certain allocations of economic resources.
See also Neoliberalism.
A political ideology that favours free markets, free trade, deregulation and privatization. It is premised on an understanding of economic actors as individualistic, self-interested, competitive, acquisitive and rational. It is the dominant ideology amongst policymakers and continues to shape much of public policy. It is based on a particular understanding of Neoclassical economics.
Neoliberalism was concocted in the 1940s by a group of academics through the foundation of an organization called the Mont Pelerin Society. The ideas were originally associated with the London School of Economics but eventually came to be championed by academics of the University of Chicago, which came to be known as the Chicago School.
For more on the evolution of neoliberalism, see Philip Mirowski and Dieter Plehwe’s The Road from Mont Pelerin and Daniel Stedman Jones’s Masters of the Universe.
This refers to the joint position of market dominance held by a small number of large firms representing significant combined market shares and market power.
Also known as ‘shareholder value maximization’ or ‘shareholder primacy’, this is the principle that the ultimate goal and measure of success for a company, and therefore the duty of its management, is the delivery of maximum financial returns to shareholders.
Shareholder value can be contrasted with stakeholder value, which is a term that implies that the purpose of corporations is to serve not just shareholders but other corporate stakeholders, such as workers, local communities, broader society and the environment.
See Shareholder value.