Reputation, the SEC, and the requirements of SARBOX are extremely effective entry barriers. SARBOX doesn't apply to privately held companies, but no small company could hope to compete with the big companies.
"If Hertz sees much of its rental fleet lying idle, it will cut its prices to better compete with Avis and Enterprise. Chances are that Avis and Enterprise will respond in kind, and the result will be lower profits all around. On Wall Street, the price of various services has been fixed for decades. If Morgan Stanley issues stock in a new company, it charges the company a commission of around seven per cent. If Evercore or JPMorgan advises a corporation on making an acquisition, the standard fee is about two per cent of the purchase price. I asked TED why there is so little price competition. He concluded it was something of a mystery. 'It’s a commodity
business,' he said. 'I can do what Goldman Sachs does. You can do what I can do. Nobody has a proprietary edge. And if you do have a proprietary edge you’ll only have it for a few weeks before somebody reverse engineers it.' After thinking it over, the best explanation TED could come up with was based on a theory of relativity: investment-banking fees are small compared with the size of the over-all transaction. 'You are a client, and you are going to do a five-billion-dollar deal,' he said. 'It’s the biggest deal you’ve ever done. It’s going to determine your future, and the future of your firm. Are you really going to fight about whether a certain fee is 2.5 per cent or 3.3 per cent? No. The old cliché we rely on is this: When you need surgery, do you go to the discount surgeon or to the one you trust and
know, who charges more?'" [John Cassidy, New Yorker]
Now, you could say it would be hard for new firms to enter this market anyway. But our government makes it impossible.
(Nod to Kevin Lewis)
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