I have discussed this with many people and not heard this competition critique before
I’m surprised to hear that. This is an economics 101 level critique. You are proposing moving from a competitive situation to something equivalent to a monopoly, and it is basic microeconomics that monopolies charge higher than other market structures. Their redeeming feature is economies of scale, but that is not present when it is just rival firms colluding to act as if they are a monopoly without actually combining their supply chains.
I’m not clear on why Universal Ownership makes a difference here—it’s already in companies’ interests to form cartels,
If each company is maximising its own profit, when raising prices they have to balance an increase in profit-per-unit against a reduction in total units sold from competitors taking share. This is a natural check against the tendency to raise prices.
However, if they are instead maximizing profit for the industry (or the universe of public companies) as a whole, this is not the case: they still get the benefit of higher profit-per-unit, but the loss of market share is instead neutral, because competitors will benefit. As such, companies will raise profits until consumers stop buying units from anyone at all, a much higher price level. As such the incentive to increase prices like a cartel is increased.
If you want you can show this using standard supply-and-demand diagrams.
and there’s already regulation to stop it.
Many existing regulators will generally not work against the sort of advanced collusion you are recommending. Your proposed system does not, for example, require any mergers, or agreements between competitors, or exclusive dealing, or many other standard techniques that antitrust goes after. This is why competition regulators have been concerned about the dangers of this approach.
As I’ve alluded to in another comment, I think you’re missing part of the model. If you incorporate UO considerations, you would have two further perspectives to incorporate:
Your model now includes the company’s competitors, who also benefit from collusion
Your model also includes the rest of the economy, which is damaged by the collusion
It is not immediately clear to me which of these would win. To a first-order approximation, it may appear that the two effects are roughly offsetting, since the cartel likely moves money from the rest of the economy to the cartel members in what might simplistically be treated as a zero sum game. To add more detail to the model, it would be worth considering that the cartel essentially constitutes a form of rent-seeking, which is generally considered by economists to be bad for the economy, which suggests that item 2 likely outweighs item 1 (i.e. maybe makes the Universal Owner less keen to take part in a cartel). I won’t keep on adding more and more details to the putative model.
I think the bottom line here is that companies currently have incentives to collude, and those incentives may still survive under a Universal Ownership system.
Your point about the mechanism of that collusion is a good one. Regulations currently anticipate ways to forbid anti-competitive behaviour, and likely don’t already anticipate a UO-driven mechanism, so the regulations would have to evolve. It’s worth bearing in mind that if this concept does reach the companies themselves (not just investors) then it will take many years, and so there will be plenty of time for this regulatory adaptation to occur.
I’m surprised to hear that. This is an economics 101 level critique. You are proposing moving from a competitive situation to something equivalent to a monopoly, and it is basic microeconomics that monopolies charge higher than other market structures. Their redeeming feature is economies of scale, but that is not present when it is just rival firms colluding to act as if they are a monopoly without actually combining their supply chains.
If each company is maximising its own profit, when raising prices they have to balance an increase in profit-per-unit against a reduction in total units sold from competitors taking share. This is a natural check against the tendency to raise prices.
However, if they are instead maximizing profit for the industry (or the universe of public companies) as a whole, this is not the case: they still get the benefit of higher profit-per-unit, but the loss of market share is instead neutral, because competitors will benefit. As such, companies will raise profits until consumers stop buying units from anyone at all, a much higher price level. As such the incentive to increase prices like a cartel is increased.
If you want you can show this using standard supply-and-demand diagrams.
Many existing regulators will generally not work against the sort of advanced collusion you are recommending. Your proposed system does not, for example, require any mergers, or agreements between competitors, or exclusive dealing, or many other standard techniques that antitrust goes after. This is why competition regulators have been concerned about the dangers of this approach.
As I’ve alluded to in another comment, I think you’re missing part of the model. If you incorporate UO considerations, you would have two further perspectives to incorporate:
Your model now includes the company’s competitors, who also benefit from collusion
Your model also includes the rest of the economy, which is damaged by the collusion
It is not immediately clear to me which of these would win. To a first-order approximation, it may appear that the two effects are roughly offsetting, since the cartel likely moves money from the rest of the economy to the cartel members in what might simplistically be treated as a zero sum game. To add more detail to the model, it would be worth considering that the cartel essentially constitutes a form of rent-seeking, which is generally considered by economists to be bad for the economy, which suggests that item 2 likely outweighs item 1 (i.e. maybe makes the Universal Owner less keen to take part in a cartel). I won’t keep on adding more and more details to the putative model.
I think the bottom line here is that companies currently have incentives to collude, and those incentives may still survive under a Universal Ownership system.
Your point about the mechanism of that collusion is a good one. Regulations currently anticipate ways to forbid anti-competitive behaviour, and likely don’t already anticipate a UO-driven mechanism, so the regulations would have to evolve. It’s worth bearing in mind that if this concept does reach the companies themselves (not just investors) then it will take many years, and so there will be plenty of time for this regulatory adaptation to occur.