Alberto Mingardi  

Antitrust vs. "Cannibal Capitalism"

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A new complaint against McDonald's has been brought to the European Commission. Interestingly enough, this is the result of a sort of "globalisation of trade-unionism": a coalition of Italian consumer organizations and European and U.S. trade unions accuses the restaurant chain of "abusing its market power to harm franchisees who run its burger restaurants as well as customers, workers and rivals."

Bloomberg reports that Scott Courtney, an official at the Service Employees International Union, has claimed that "No company is more responsible for driving a global race to the bottom than the Golden Arches, which has pioneered and perfected a brand of cannibal capitalism." "Cannibal capitalism" is a rather amusing way of putting it, I concede. But one can't but wonder what all of this has to do with antitrust and "abuse of dominant position." By the trade unions' lawyers, McDonald's is credited with a market share "consistently above 30% and sometimes as high as 70%" of the fast food market, in different European countries.

It seems to me that there's quite a difference between a 30% and a 70% market share. Market definition ain't easy: are fancy hamburger places (which may charge you 10 bucks for a burger) fast food, too? What about pizzerias? burger2.jpg

Moreover, the notion that McDonald's market dominance may harm "franchisees who run burger restaurants as well as customers, workers and rivals" is to me rather astonishing.
It might well be that franchisees do not like the contractual conditions they agreed to, by working with McDonald's. Everybody is at liberty to change her mind, particularly as market conditions evolve (read this remarkable piece by Kevin Williamson, on why McDonald's is Microsoft and is being beaten by the Googles of burgers). But are they complaining they are locked in outdated agreements and can't go fishing for different solutions? This is not clear from the news reports. Generally speaking, and judging from the number of new restaurants opening their doors, this particular industry does not appear to be stagnating.

If McDonald's is charged with "exploiting its position as a landlord by requiring franchisees to lease its property and charging rents in Europe about three to four times higher than market levels," what's the matter with customers? McDonald's prices vary around the world, but nonetheless McDonald's seems to be consistently aiming at low income consumers, in different countries. Do the complainants argue that McDonald's prices should be even cheaper all over Europe, and they ain't so because of rents?

On The Wall Street Journal, we read that

The three consumer groups--Codacons, Movimento Difesa del Cittadino and Cittadinanzattiva--argued in a statement that "restrictive contract terms" imposed by the fast-food chain "result in an increased prospect of financial difficulties, poorer financial performance than competitors and higher probability of default" for franchisees. That in turn leads to reduced consumer choice and service quality, and higher prices, the groups claimed.

It seems to me that McDonald's is being accused by consumer groups and trade unions of being shortsighted. They know better how the company should be run, and they want to government to make sure it shall be. Good luck with that.


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CATEGORIES: Business Economics




COMMENTS (2 to date)
Jon Murphy writes:
The three consumer groups--Codacons, Movimento Difesa del Cittadino and Cittadinanzattiva--argued in a statement that "restrictive contract terms" imposed by the fast-food chain "result in an increased prospect of financial difficulties, poorer financial performance than competitors and higher probability of default" for franchisees.

I may be missing something, but I don't understand this aspect of the complaint. In McDonalds is deliberately harming the financial positions of their franchisees, increasing their likelihood of default, wouldn't that weaken their monopoly position, not strengthen it? I mean, how can a firm gain monopoly power if their stores are performing worse then their competitors?

JK Brown writes:

Seems to me, these are groups who want to live in the past of big corporate name cache, even as they see what Paul Graham calls "The Refragmentation" undermining the big corporate route. Apparently, the refragmentation has reached fast food franchising.

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