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Coronavirus update: Will the crisis make some markets less contestable?

Geoff Riley

22nd July 2020

The coronavirus pandemic will undoubtedly have an impact on the market structures of many industries.

In some cases, it might accelerate the number of mergers and takeovers – for example in food delivery services, leisure, tourism and retail – which could increase the market power of established firms and make markets less contestable.

June 2020: Grubhub to merge with European food delivery company Just Eat

The economic crisis may affect smaller firms and market entrants more than the big powerful firms. Some economists have written about the continued growth of superstar firms especially digital platform businesses such as Google, Amazon, Facebook, Apple, Microsoft and Zoom whose market dominance appears to have intensified in recent months. The share of younger, smaller firms has declined in lots of industries over the last ten years.

July 2020: How have Big Tech and other digital platforms fared in the crisis?

Smaller businesses tend to have fewer financial resources to survive a collapse in revenues and profits.

July 2020: Treasury mulls plan to set up coronavirus toxic debt body to save UK small businesses

That said, market entrants have an opportunity to be innovative to claim extra market share but again they are unlikely to have the deep financial pockets of scaled businesses with a significant market share.

The crisis may also have fast-forwarded the adoption of new technologies to the benefit of innovative new entrants looking to scale quickly.

And many smaller businesses have successfully harnessed the platforms of tech giants such as Amazon and Facebook to build a stronger online presence and start selling via the web.

June 2020: What Amazon, Visa and Facebook are doing to help small businesses survive coronavirus

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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