Enticing monopolies to unwind themselves

Breaking these monopolies is a tall order, requiring armies of solicitors and countless billable hours

December 07, 2022
© Alamy
© Alamy

The Competition and Markets Authority (CMA) has admirably orientated itself towards ensuring that firms are neither “too big to fail” nor “too big to jail”. This includes blocking future “mergers to monopoly”, where fusing firms results in the sort of monopoly that kills competition and resists government reform. This is a crucial step, because monopolies are not only bad for consumer prices and workers’ wages, but also warp proper governance with their own gravity. 

But blocking future monopoly formation is useless—worse than useless!—unless combined with action to break up existing monopolies. Simply capping the size of small firms where tech giants already hold sway would just rig the market for the Goliaths and not the Davids, putting them at the mercy of the big beasts for whom they will be easy pickings, with predictable results for prices and wages. 

Yet breaking these monopolies is a tall order, requiring armies of solicitors and countless billable hours—something magic circle firms may relish, but that governments don’t. For those of us who remember the 1980s and its high-flying corporate raiders—who used leverage to break up companies, rather than rolling them into monopolies—another avenue is possible.

Breaking these monopolies requires armies of solicitors

I propose we use the example of the 1980s and give today’s would-be raiders a pot-sweetener for bringing about similar breakups: specifically, a two-year capital-gains holiday for profits realised by unwinding economically significant mergers (over £10bn) undertaken since 2000. Watch them do in months what decades of courtroom grinding couldn’t hope to accomplish. 

This is a neat scheme that ties the reward to the desired action. It’s a move that encourages genuine dismantling—a global firm that only unwinds its merger in the UK will generate fewer capital gains than a firm that dismantles itself root-and-branch. Investors will hardly tolerate leaving so much money on the table. 

Subject to two iron-clad safeguards—a strict two-year deadline to provide urgency and ensure tax-free profits are from the breakups and not subsequent growth, plus a 10-year prohibition on re-mergers—we can be confident that this is an all-round win. Historically markets have rewarded breakups handsomely, from the regulator-forced breakup of Standard Oil in 1911, to more than half a century later, when telecoms company AT&T was broken up in 1982. And it will still hold true today.

This article first appeared in Minister for the future, a special report produced in association with Nesta.