Buying Out the Competition: Are Modern Monopolies Built or Bought?

 Iva Aleksic

In economics, different market structures determine how firms operate, set prices, and interact with consumers. A monopoly is a market structure in which a single firm is the sole seller of a product with no close substitutes. However, in today’s economy, monopolies are not always built through innovation or efficiency, they can be bought.

The key difference between traditional monopolies and modern ones lies in how they establish dominance. In the past, firms like Standard Oil and AT&T built monopolies by controlling supply chains and lowering costs to outcompete rivals. Today, however, monopolistic firms often achieve dominance through external growth. Instead of competing in an open market, they eliminate potential rivals by purchasing them, reducing competition and strengthening their dominance. This raises a crucial economic question: Are monopolies today truly gaining power through market superiority, or are they simply acquiring their way to the top?

                                        

When Google acquired YouTube in 2006, it didn’t just purchase a video-sharing platform, it bought a competitor that could have developed into a rival in digital advertising. By integrating YouTube into its advertising network, Google eliminated one of the biggest potential threats to its business model. As a result, Google gained near-total control over online advertising, making it nearly impossible for new entrants to challenge its dominance in video content distribution. The same can be said for Disney’s takeover of Pixar, Marvel, Lucasfilm, and 21st Century Fox, which was not just about expanding its content library. By acquiring these major studios, Disney eliminated risky competitors, reducing diversity in the entertainment market. But does this outbuying truly improve consumer choice, or does it create an illusion of competition while purchasing independent studios?

Market power gained through external growth creates several economic problems:

• Reduces Innovation: When dominant firms buy out smaller companies, they eliminate competitors that could bring new ideas to the market. Acquired firms are often absorbed into the larger corporation’s independent innovation. If startups are constantly acquired instead of growing into competitors, will innovation in these industries slow down?
• Increases Prices: With fewer competitors, monopolistic firms have more freedom to set prices without fear of being undercut. Consumers may not immediately see price increases, but in the long run, a lack of competition results in higher costs for goods and services. Does this mean consumers will ultimately pay more for fewer choices?
• Creates Market Entry Barriers: As industries consolidate, it becomes increasingly difficult for new firms to enter the market. Startups that might otherwise challenge industry leaders are either forced out early or acquired before they can grow large enough to pose a real threat. Is it still possible for new companies to disrupt markets dominated by giants like Google and Disney, or is the playing field permanently tilted in favour of existing monopolies?

The government deals with this through current global antitrust laws, but they struggle to address this problem. Traditional antitrust laws were designed to break up monopolies that grew through direct market dominance, so this legal control over monopolisation via acquisition is limited. Unlike the Standard Oil case, where control over oil supply justified intervention, Big Tech and entertainment firms argue that their acquisitions create better services for consumers. This makes it harder for regulators to prove consumer harm in the short term, even though long-term market competition suffers.

Governments have attempted to push back. The EU fined Google billions for anti-competitive behaviour, while the U.S. FTC has investigated Facebook’s acquisitions of Instagram and WhatsApp. However, these actions came too late, long after the companies had already strengthened their market positions. So, are regulators simply too slow to act, or do modern monopolies really create better services?

That question is still left without an answer, and it could be that we are witnessing a new era of monopolies overbuying the market. Can regulators find a balance between allowing companies to grow and ensuring fair competition is yet to be seen.

 

References:

Denicolo, V. and Polo, M. (2023) “The Economics of Mergers and Acquisitions”, Centre for studies in Economics and finance. Available at: https://csef.it/wp-content/uploads/Polo-Michele.pdf (Accessed: 25 February 2025).

Geo ExPro (2011) The Standard Oil Story III: The Rise, Fall and Rise of the Standard Oil Company. Available at: https://geoexpro.com/the-standard-oil-story-iii-the-rise-fall-and-rise-of-the-standard-oil-company/ (Accessed: 25 February 2025).

Statista (2024) Biggest mergers and acquisitions by The Walt Disney Company. Available at: https://www.statista.com/chart/32196/biggest-mergers-and-acquisitions-by-the-walt-disney-company/ (Accessed: 25 February 2025).

The Guardian (2006) Google buys YouTube for $1.65bn. Available at: https://www.theguardian.com/media/2006/oct/09/digitalmedia.googlethemedia (Accessed: 25 February 2025 ).

About the Author

Iva is a second-year Business Management student with a strong interest in economics, sustainability, and business analytics. If you share similar interests, feel free to reach out at bs23680@qmul.ac.uk.