Company Consolidation Can Be Complex

In the industry today, one of the latest trends is the consolidation of companies. It is happening with companies such as Microsoft, Oracle and IBM, all of whom either is buying up specialty companies to remove competition or to get the right players in their fold.

For the most part, consolidation seems to be a good thing. Many companies start out with a lot of smaller companies that have something that customers want. When they can't come up with the goods, or when they get larger, other companies step in to fill the customer demand. Usually as the company gets older, a single company begins to dominate and the remaining companies are either lost to the competition or are bought out of the marketplace. Therefore, when an IT firm starts to do this, it's a sign that the industry is maturing and that is normally seen as a good thing.

Conversely, it can be a bad thing. When good people cash out, the cultures never seem to mix. Therefore, at least in the short term, the consumer gets products that aren't up to par.

Consolidation is a very complex option. While it means that the industry is maturing, it is also a sign that inferior products are being offered to the consumer.

One highly controversial consolidation story has to do with gasoline companies. The price of gasoline tripled between 1998 and 2005. These price increases happened immediately following numerous consolidations that involved some of the largest companies in the petroleum industry.

In May 2004, the federal government's Federal Trade Commission and the General Accounting Office each provided reports about what effect the consolidation of petroleum companies had on oil prices. They each came to opposing conclusions.

A subsequent FTC investigation determined that there was no evidence that the large oil companies manipulated or otherwise fixed prices following Katrina. While it is noteworthy that firms took numerous steps, including increasing production, to boost supplies, the study did not take into account whether the response would have been larger if the industry had not become so consolidated.

However, there is some good news about higher prices. They sometimes alert existing companies to increase production and often attract new oil producers.