Critics say U.S. public procurement is fueling the concentration. In Finland, the same was observed when Kela rides were put out to competition, but the situation was rectified.
In the United States, the closure of one plant caused an acute shortage of infant formula in the spring, while highlighting the problem of a concentrated market. When production is in the hands of only a few large companies, the problems of any one company can lead to difficulties for consumers.
The infant formula crisis began when Abbott Nutrition closed its plant in Michigan in February due to suspected bacteria and withdrew its products from the market. A factory-made substitute is suspected to be linked to a bacterial infection in four children.
In the United States, the crisis took on even greater proportions than it would have had in Finland, for example. Mothers return to work at least a week after giving birth, and only some workplaces provide the opportunity to pump milk for future use.
The problem concerns worst low-income women (moving to another service). They cannot afford to be away from work for long periods of time, but there is often no opportunity to pump and store milk in the workplace. That’s why you need to use a breast milk substitute – if it can be found in stores.
Four companies hold the sector
In the United States, with a population of about 330 million, the market for infant formula is practically held by four large companies. Their market share is over 90 percent.
However, concerns have been raised in the media that market concentration is not limited to infant formulas, but that shortages of vital products are commonplace in the United States. For example, there is a constant shortage of medicines and hospital supplies, writes a specialist in antitrust and markets Matt Stoller British newspaper The Guardian. (switch to another service)
In 2019, the U.S. Food and Drug Administration FDA wrote that (go to another service) more and more young doctors are unable to treat patients to high standards of care because they are not accustomed to having the right medicines available.
“Public procurement fuels concentration”
According to Stoller, availability problems were not common before 2000. In his opinion, the main reason for the problems is the contracts made by the public administration with one of the leading suppliers.
Large companies sell to the public administration cheaply and to others more expensive. At the same time, they are effectively pushing smaller players out of the market.
There are also large buyers like the public sector across the country, most notably the big companies Amazon and Walmart.
When there are one or two producers, the closure of one plant leads to availability problems. Today it’s about breast milk, tomorrow it could be about antihypertensives, Stoller says.
Market concentration is everywhere, from seed to cultivation, cowboy boots and airlines, says the chief economist at the Open Market Institute. Brian Callaci Marketplace news site (go to another service). He points out that, for example, everyone in their twenties has seen a decline in the number of airlines and a deterioration in their travel experience.
One reason is the federal policy, which is too permissive for business combinations, says New York University, which specializes in competition policy. Eleanor Fox Marketplace. According to him, for decades, mergers have been blessed in the name of efficiency, even if only a few companies remain on the market.
The problem of one company confused pharmaceutical distribution in Finland
Effective competition is in the interests of the consumer, but there are industries where production costs are so high that they are inherently concentrated, says the research director. Tuulia Hakola-Uusitalo From the Finnish Competition and Consumer Authority to by phone.
He is unable to identify a specific industry in which a lack of competition in Finland could lead to a shortage of a critical product that cannot be replaced by another.
The vulnerability of pharmaceutical distribution is increased by the fact that there are only two large pharmaceutical wholesalers in Finland, and only one of them imports certain medicines.
The Finnish Center for Security of Supply says that we have identified threats due to the fact that the production of a product depends on a so-called single card. Risks are taken into account, for example, by increasing the purchase volume or with an alternative product or technology, says the advisor Mikko Matikainen the Centre’s health team.
Efforts have been made in several critical products to ensure the continuation of domestic production or to secure alternative sources of imports, Matikainen tells by e-mail.
Critical product groups include, for example, all product groups that maintain health: nutrition, pharmaceuticals and healthcare supplies. Matikainen sees energy production as a particularly critical sector, as so many other products depend on it.
The law on acquisitions is being criticized
The Finnish Competition Authority’s Hakola-Uusitalo considers Finland’s problem to be that it is possible to prevent harmful concentration through acquisition control to a greater extent than in other Nordic and EU countries. Only acquisitions that exceed the turnover limits specified by law are subject to supervision.
In Finland, these turnover limits are exceptionally high, and therefore only a small part of the market is subject to acquisition control.
A short-term benefit can be a long-term loss
Hakola-Uusitalot states that a really big question in Finland is how public procurement should be done.
As an example, he cites the competition for Kela taxis. When taxis were opened to competition, Kela taxis were brokered by one brokerage center in the local market. This led to the concentration of the taxi market. However, the problem was addressed and the tender was changed to include two intermediaries in each area.
Kela rides are very important for taxis in some locations, and the change was intended to ensure that the public operator would not be too affected by the concentration of the taxi market.
Hakola-Uusitalo points out that the choice between long-term and short-term benefits is not unambiguous. If the winner of the tender gets the whole market, it will be able to push down costs and sell cheaper. However, if the market is monopolized in this way, the company may raise prices later.
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