Why a free market doesn't really exist in food - VeggieBoards
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#1 Old 05-17-2004, 11:59 PM
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This is from one of my favorite websites, whose purpose is to follow mergers, buyouts, trends, and actions between companies with an eye toward the creation of oligopolies (markets in which only two or three companies control a vast percentage of that market).



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Originally Posted by Oligopolywatch View Post

Food Brokers: an oligopoly in the middle



Even more dramatic than the concentration of supermarkets has been the concentration of food brokers, the middlemen in the food industry. There are now just three privately held companies in the U.S. that dominate this field: Acosta, Advantage Sales and Marketing, and Crossmark. All three have quadrupled in size over the past decade. At that point there were around 2,500 regional grocery brokers. Through acquisition and hard competition, these three dominate the majority of the business between them. They are now working on expanding abroad, buying up local distributors from Europe to Australia.



Broker are in charge of selling and stocking products to food sales outlets from supermarkets to convenience stores to corner grocers. The advantage they give is that they can coordinate sales nationwide and manage warehousing and delivery efficiently, something most food manufacturers have traditionally not wanted to do or couldn't afford to do.



The fact that these three divide the market between them means that they tend to represent one competitor in each category, such as ice cream, potato chips, hot-dogs. They can't really represent a fourth competitor in any one category. For the most part, this leaves out small and new manufacturers in general. Besides, there's no incentive for them to introduce a new product in an area they already cover, because the sales will tend to even out (a zero-sum game). As one bitter producer noted: "You have to guarantee huge sales and nationwide appeal for them to take you."("Food Brokers are Bigger; so Shelves Look Smaller", Wall Street Journal, Sept. 2, 2001) These are very hard things for a new product, a new company to prove.



The big brokers have developed in response to the big food manufacturers and the big supermarket chains. Big companies only want to deal with other big companies, to reduce the number of vendors they handle. Likewise, the overhead in dealing with a single-product company is seen by the brokers as excessive; they'd rather deal with a company with a full line of products.



If you are the guy who is making specialty salsa, you now have even one more obstacle. In the old days a small food broker might take a chance on you, and push your products to local markets. Now most of the decision-making is between big national brokers and national supermarket chains. Even if you can compete in quality and value against the Krafts and General Millses of the market, you can't easily get the attentions of the crucial food brokers.



Like other middlemen, the food brokers are themselves being squeezed. More and more supermarkets are maintaining their own warehousing and distribution; on the other side, the biggest food companies have their own regional warehouses and distribution systems. The brokers are in danger of being squeezed out of much of their market. There will always be smaller markets and smaller food manufacturers, but the big money is looking to avoid the middleman



http://www.oligopolywatch.com/2003/07/05.html
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#2 Old 05-18-2004, 12:01 AM
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NOTE: A decade ago, 2500 of these companies... today, three dominate, and their eyes are looking overseas.
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#3 Old 05-18-2004, 05:59 AM
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Smaller companies generally have to sell their own products and be their own distributers to prove themselves worthy or even survive.



I think the time to be really worried is if the big "three", as they put it, start telling (whether directly and/or indirectly) the markets who they can and cant buy from.
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#4 Old 05-18-2004, 08:18 AM
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Quote:
Originally Posted by Frost View Post

Smaller companies generally have to sell their own products and be their own distributers to prove themselves worthy or even survive.



I think the time to be really worried is if the big "three", as they put it, start telling (whether directly and/or indirectly) the markets who they can and cant buy from.



Would it not be prudent to worry early? I think that might be better than waiting until the companies are more of a threat than they are already. As they say, an ounce of prevention..
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#5 Old 05-18-2004, 12:47 PM
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Quote:
Originally Posted by Frost View Post

Smaller companies generally have to sell their own products and be their own distributers to prove themselves worthy or even survive.



I think the time to be really worried is if the big "three", as they put it, start telling (whether directly and/or indirectly) the markets who they can and cant buy from.



I think the problem is that the big three distributors have no financial incentive to pick up a product from the smaller company who is selling its own product (say a cola) because they already have a product that fits that need. If they do add the new product, it'll just take sales away from the other product they distribute, zero-sum game. So the smaller company can become a regional success, but the chance of going beyond that is minimal. And remember, this has all been going on in the last ten years, so we really don't know what effect it will have on smaller companies yet.



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#6 Old 05-18-2004, 01:18 PM
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somehow, I am not surprised.

I would expect the supermarket industry to reflect the dominant trend of the rest of the economy, ie increasing monoplolization.



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np: squarepusher
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#7 Old 05-18-2004, 04:50 PM
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Yup.
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#8 Old 05-19-2004, 11:27 AM
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Quote:
Originally Posted by Dr. Schmeebis View Post

Would it not be prudent to worry early? I think that might be better than waiting until the companies are more of a threat than they are already. As they say, an ounce of prevention..



Innocent until proven guilty. Until its proven they are monopolizing their current industry I dont see what the big deal is. If it happens to be proven, then appropriate action has always been taken by the government and the swarms of public interest lawyers lurking in the shadows.



If a small company makes a good product or products, has a good business model and good marketing theyll go as far as they want to.



Intuit is a great example of a dinky software company that warded off its goliath competitors for almost ten years, the largest being Microsoft, for the tax and bookeeping niche.



Microsoft tried giving away free copies of their Money program and when that didnt work they finally made an offer at merging through a major stock aquisition (which was denied by the dept. of justice I believe). To this day Intuit still owns that market share. I realize this isnt a "food" company but business is business and competitors dont get any meaner or bigger than Microsoft.
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#9 Old 05-19-2004, 11:50 AM
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Come on, Frost. Software is a new industry and any new industry gives a lot of opportunity for small businesses coming into it. You know better than to use software or creative fields as anecdotal evidence of business trends.



As for monopolies... I'm not talking about that. Monopolies are illegal... oligopolies aren't. They're just sad.



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#10 Old 05-19-2004, 02:09 PM
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Quote:
Originally Posted by Jimdavis View Post

Come on, Frost. Software is a new industry and any new industry gives a lot of opportunity for small businesses coming into it. You know better than to use software or creative fields as anecdotal evidence of business trends.



As for monopolies... I'm not talking about that. Monopolies are illegal... oligopolies aren't. They're just sad.



Jim



Ok how about Tom's of Maine?



I also dont see that as a bad example, software is extremely competitive. In fact its much like the problem you have with the food industry. Electronic Arts practically dominates the game market, Microsoft the productivity market.
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#11 Old 05-19-2004, 02:36 PM
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People whine about things, but they don't do the most basic things. Stop buying their products as much as you can.



Don't like the numerous human rights abuses comitted by the Coca-Cola Company? Stop buying their products. (I've done this)



Don't like Exxon's/e$$o's bullcrap about the enviornment? Go to another station. (I know, they're all bad, especially Shell and Exxon/e$$o. But, unfortunately, there is no "clean" oil/gas company. But, next time you buy a car, look for hybrid/full electric/hydrogen (in the future) cars.)



Use your power as a consumer.
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#12 Old 05-19-2004, 02:50 PM
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But how much power can you have when organizations become conglomerates specifically to avoid the market's fluxuations? How much power do consumers have when governments institute policies specifically to limit consumers' power?



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#13 Old 05-19-2004, 03:17 PM
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Becoming a conglomerate doesn't insulate a company from market fluctuations.



From what I read in this discussion, most of you seem to have a limited view of the market. Frost is on point - smaller retailers, be they local, regional, or national, may not have a lot of market share, but they do provide other options.



Regarding consumer choice, clickman is correct when some forget that choosing to purchase nothing is an option. A company can price and market however they choose, I make the final decision about whether to buy or not. Unless the demand curve for a product is very inelastic**, companies are affected by consumer choice. (**If you don't know what that means, you need to review some basic economics texts before trying to discuss markets.)



I am also confused about the allegation of government instituting policies to limit consumer choice.
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#14 Old 05-19-2004, 08:43 PM
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Quote:
Originally Posted by Tame View Post

Becoming a conglomerate doesn't insulate a company from market fluctuations.



From what I read in this discussion, most of you seem to have a limited view of the market. Frost is on point - smaller retailers, be they local, regional, or national, may not have a lot of market share, but they do provide other options.



Regarding consumer choice, clickman is correct when some forget that choosing to purchase nothing is an option. A company can price and market however they choose, I make the final decision about whether to buy or not. Unless the demand curve for a product is very inelastic**, companies are affected by consumer choice. (**If you don't know what that means, you need to review some basic economics texts before trying to discuss markets.)



I am also confused about the allegation of government instituting policies to limit consumer choice.



Tame, sometimes you act as if having an economics degree and the insight its given you will make you more correct politically. There are many economists who are very left-wing in their political beliefs. Just because you have a degree in economics does not mean you have more insight into the correct way to politically view things. Economics and politics are two very different disciplines, and economics education doesn't necessarily give direction on one's political beliefs.



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#15 Old 05-19-2004, 08:46 PM
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I mean, look at this list and tell me these people agreed on politics:



Bastiat, Frederic Friedman, Milton Galbraith, John Kenneth Greenspan, Alan Hayek, F.A. Humour John Maynard Keynes Paul Krugman Simon Kuznets Thomas Robert Mathus Karl Marx Mises, Ludwig von Schumpeter, Joseph Alois Amartya Sen Adam Smith Thomas Sowell
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#16 Old 05-19-2004, 08:51 PM
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Quote:
Originally Posted by Jimdavis View Post

Tame, sometimes you act as if having an economics degree and the insight its given you will make you more correct politically. There are many economists who are very left-wing in their political beliefs. Just because you have a degree in economics does not mean you have more insight into the correct way to politically view things. Economics and politics are two very different disciplines, and economics education doesn't necessarily give direction on one's political beliefs.



I have no idea why you chose to get pissy. I never mentioned political beliefs in my post, nor did I see that as a main point of this discussion.



Even liberal economists have a fundamental understanding of markets. I find in these discussions that many make baseless assumptions about the power companies/corporations/conglomerates have over the market. Even a monopoly doesn't have full control, contrary to popular belief.
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#17 Old 05-19-2004, 08:52 PM
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Quote:
Originally Posted by Jimdavis View Post

I mean, look at this list and tell me these people agreed on politics:



Bastiat, Frederic Friedman, Milton Galbraith, John Kenneth Greenspan, Alan Hayek, F.A. Humour John Maynard Keynes Paul Krugman Simon Kuznets Thomas Robert Mathus Karl Marx Mises, Ludwig von Schumpeter, Joseph Alois Amartya Sen Adam Smith Thomas Sowell





I mean, look at my post and see if I mentioned politics.



Marx -
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#18 Old 05-19-2004, 11:48 PM
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Quote:
Originally Posted by Tame View Post

I have no idea why you chose to get pissy. I never mentioned political beliefs in my post, nor did I see that as a main point of this discussion.



Even liberal economists have a fundamental understanding of markets. I find in these discussions that many make baseless assumptions about the power companies/corporations/conglomerates have over the market. Even a monopoly doesn't have full control, contrary to popular belief.



Oh, I'm sorry, then. I thought you were being anti-socialist.



Jim
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#19 Old 05-20-2004, 04:12 AM
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Quote:
Originally Posted by Tame View Post

I have no idea why you chose to get pissy.



"Pissy" might be overstating it just a bit, don't you think?
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