In 2015, worldwide mergers and acquisitions added up to a record $4.28 trillion worth of deals. These mega-mergers, such as the Dow and DuPont $130 billion deal and the recent $66 billion deal between Bayer and Monsanto, are prominent examples of companies consolidating within their industries. Economists today are asking themselves whether these mergers and concentrated sectors are to be revered or feared.

Big businesses strive to become even bigger and more dominant within their sectors. Multiple industries have seen a large increase in mergers and acquisitions since 1990. In 1990, there were 11,500 deals. In 2008, that number has risen to 30,000. Although the image of a booming Silicon Valley makes start-ups feel ubiquitous in America, the rate of new businesses formation has actually been declining for the past three decades. Since 1986, the United States workforce has seen a 53 percent increase in employment by the 100 biggest businesses according to The Economist. Americans and people around the world are feeling the increased effects of large corporations.

There are many reasons why companies merge together. For one, companies that merge can produce more goods at a cheaper price and thus achieve economies of scale. Steel industry mergers in the early 20th century were often motivated by this reason.

Another reason is innovation. After a merger, the resulting company’s increased profits could be used to design new goods and services that smaller companies may not have enough capital to achieve.

A company may also buy out another company to eliminate its competition, diversify its products for different industries or to increase its supply. Overall, companies want to get bigger, increase their power in the market and achieve record profits year after year.

However, what are the reasons behind the increase in mergers? One main factor has been low-interest rates for the past ten years. The low rates make it easier to borrow money and buy out other companies. Also, after the 2008 financial crisis, businesses have been wary of reinvesting excess returns. As a result, there have been huge cash reservoirs left unused by companies. These reservoirs are then used to buy out companies through mergers and acquisitions. Since the demand for goods and services in the global economy has been depressed, businesses are motivated to grow their profits through mergers rather than organic growth.

The United States has seen this massive shift towards large companies ruling industries. The proportion of United States GDP generated by the largest 100 companies rose from 33 percent in 1994 to 46 percent in 2013. The Economist referred to this trend as a “concentrated version of capitalism.”

Many problems arise when few companies control the majority of an industry. Aside from the other reasons why companies merge and expand their cash flows, such as economies of scale and globalizing their products, merging companies also seek more conniving perks. Consolidation may lead to more lobbying power which could then lead to the creation of financial regulations that suit the company.

Companies also merge in order to take advantage of tax cuts. This was evident in the attempted $160 billion merger between Pfizer and Allergan. The CEO of Pfizer proclaimed the deal was to combine both pharmaceuticals companies for more researching power. Months later, the Obama administration passed new corporate tax inversions laws. The deal was soon abandoned, which made it clear that the real motivation to merge was to move Pfizer’s headquarters to Ireland for the 12.5 percent tax rate, compared to their previous 35 percent US tax rate.

One aspect that economists are wary of is the effect ever-expanding businesses have on competition. Competition within the economy is one of the most vital forces that keeps innovation, productivity and growth in tune. Uncompetitive markets can result in sluggish productivity trends and higher prices for consumers.

The United States is undergoing a shift from competitive markets to consolidated ones. The 1980s deregulation enacted by the Reagan administration was intended to bring competition to untapped industries, like telecommunications. This created increased competition that is now disappearing as big businesses begin to focus more on consolidating and morphing into larger corporations.

As companies grow, extend their lobbying power and increase their profits, they shift their focus to creating a more defensive outlook towards competitors. Small companies that rival large businesses have an extremely hard time competing. In theory, if a company is enjoying high profits, rival companies compete by creating cheaper or better products so that the profits settle back to normal levels. America has not seen many such examples of competitive advantage in this decade. Firms in 2003 that had 15 percent or more in profits still had an 83 percent chance of being profitable ten years later in 2013.

Although merging and growing companies are feared by some, large corporations should also be celebrated. Big companies have the resources to mass produce electric cars at affordable prices. Google may be one of the largest corporations in the world with enormous power within its industry, but the company is responsible for its unbelievable search engines that almost everyone with the internet uses every day. Without the massive size of some businesses, people may have never used or imagined the goods and services available in the economy.

The trend towards large, consolidated companies has been increasing in the United States. Businesses taking advantage of deregulation and easier credit create highly concentrated industries that pose both benefits and disadvantages for consumers. Whether the benefits outweigh the disadvantages remains to be seen.

On April 12th, Facebook acquired the well-known app company Instagram for approximately $1 billion. The pricing may be bewildering to some; after all, how could a company with just one free smartphone app and 13 employees of negligible value sell for the same price as a small island nation? The app’s functions, while clever, are nothing that Facebook couldn’t recreate for a small fraction of the acquisition cost — Instagram simply allows users to take photos from their smartphones and applies various digital filters in order to give them a vintage feel, modifying them in the style of old Polaroid cameras. The result is photos with a distinct vintage feel to them that can then be shared to various social networks. The app was a breath of fresh air for users (read: hipsters) who wanted that old- school feel to their pictures without having to lug around a bulky analog camera. From a functionality standpoint, that’s all the company offers. Any decent programming team could produce (and have produced) almost identical apps.

However, this train of thought misses the point. The lack of proprietary value in the app belies the true value of this deal to Facebook: the network of people that Instagram can bring to the social networking giant.

Instagram has over 30 million registered accounts, representing a vast network of mobile users that represents huge potential for a social network like Facebook. This number should continue to soar as Instagram only recently began expanding beyond iOS devices (the Apple lineup of mobile electronics including the iPhone, iPad, and iPod Touch) to the most popular smartphone operating system in the world, Android. The app was downloaded over one million times in the first 12 hours it appeared on the iOS alternative, representing the eager user base for the app. Despite the staggering number of users, Instagram has made no revenue to date, leading many to say that is has no business model at all. In other words, with nothing proprietary, no real future hope for revenue, and only popularity and polish to its name, Instagram is worth $1 billion for its loyal mobile users alone.

In Facebook’s eyes, what users actually do with the app is irrelevant, so long as it gives them access to users they could not reach before. Facebook’s own business model is dependent on getting as many users as possible using the site as much as possible, and one place it has not been able to do so is in the mobile app area. Facebook not only gets revenue through users clicking on ads of relevance to them, but by analyzing the preferences of its users, it can give each user the ad they are most likely to click on–thereby maximizing ad revenue.

Instagram not only adds another way to profile users, but it also adds a brand new network to Facebook’s massive web. Facebook has a mobile app for its social network, but amidst poor reviews has not found a great increase in traffic from it. Instagram’s users are exclusively mobile, and the social network simply wants to change that network of Instagram users into new mobile Facebook users. In a statement regarding the purchase, the company emphasized the importance of mobile usage, calling it “critical to maintaining growth and engagement over the long term”. Ultimately, this is not a purchase of an app, or some employees, but an acquisition of users, which is well worth it to a modern internet company like Facebook.

The Instagram acquisition represents an industry-wide trend of buying companies to capture their network despite their apparent lack of a business plan. Companies like Groupon, Pandora, LinkedIn, and Yelp all attract investments valuing them at hundreds of millions, largely for the users they bring to their investor. Each of these companies stakes its future on all its users having intrinsic monetary value, and assumes that they will inevitably make money off of them through advertising. With the power of advertising that tracks users’ preferences, capturing networks may end up being the key to capturing the riches on the Internet…or it could end up being fool’s gold. That user base may represent incredible potential profit, but it seems increasingly dubious that the valuation of these companies is reflected in their sky-high stock prices.

Such was the problem of the Web 1.0 bubble, where popular companies with no real earnings potential were gobbled up by investors and failed spectacularly. Could we be seeing the new Web 2.0 bubble, a severe overvaluation of the networks of companies doomed to failure? Or is Facebook slowly consolidating users to the point where they will be a financial success until the end of time?

Either way, we are entering an era where the people that follow a company are far more valuable than the company itself.

Pharmaceutical giants have flirted with biotechnology firms over the years, but only recently has there been serious talk of marriage. Since the 80’s and 90’s, these two kinds of drug producers have tried everything from joint licensing deals to extensive alliances. However, the two industries have maintained their independence. Both tacitly acknowledged inherent differences in their business models and cultures, and therefore avoided complete mergers.

That is, until their recent union. In 2007, an estimated $60 billion in biotech acquisitions by pharmaceutical companies occurred in the U.S. alone. The most talked- about example is Swiss pharmaceuticals company Roche and its $44 billion offer for California- based Genentech, the largest biotech firm in the world. Other major deals of late include Bristol-Myers Squibb’s bid for ImClone, AstraZeneca’s purchase of MedImmune, and Takeda’s acquisition of Millennium. The purchases are surprising given the recent recession and investment slump. So what spurred this sudden upsurge in mergers?

The most apparent driving force appears to be the pending wave of expirations on patents pharmaceutical companies have traditionally relied on. Starting with the Hatch-Waxman Act of 1984, the Food and Drug Administration (FDA) has granted exclusive marketing rights to brand name drugs for specified periods of time. Comparable generic drugs could typically enter the market after ten to fourteen years, causing prices to drop by about eighty percent. This government-granted monopoly has been both a blessing and a curse for the pharmaceutical industry: while they raked in billions from drug patents, easy profits have largely stifled any desire to innovate.

In buying up biotech innovators, pharmaceutical companies hope to fill their emptying pipelines with products less susceptible to imitation. Unlike most pills, biotechnology drugs often consist of complex proteins. Generics have difficulty replicating such products, giving pharmaceutical companies time to boost their sales while competition plays catch up. Furthermore, since biotech products are relatively new, FDA regulations pertaining to their patents are less clear. So even if generics successfully copy biotech drugs, regulatory barriers can make getting the drugs to the market arduous and expensive.

Still, it seems risky for pharmaceuticals to put high stakes on large biotech players when smaller firms are much cheaper to absorb. One possible explanation is heavier regulatory oversight on the part of the FDA. Recent safety scandals involving brands like Merck’s Vioxx and GlaxoSmithKline’s Avandia shook regulators, making them wary of sanctioning new inventions. Even if start-ups have good ideas, the FDA will likely regard them with suspicion and therefore complicate their profit prospects. Established biotech firms, on the other hand, have approved drug lines. Pharmaceutical businesses are hence willing to shell out more for partnerships with greater guarantees of return.

Some pharmaceutical companies also view the recession as an advantageous time to buy. Investors remain pessimistic about the industry’s lack of innovation and potential government price-controls on drugs. Acquisitions could therefore revitalize innovation and boost investor confidence. The weak dollar has also made U.S. firms prone to foreign takeovers, as the recent European courtship of Californian and Massachusetts biotech firms attests to.

Moreover, drug companies are working on a product that would treat colon cancer, which has been rumored to exceed original expectations. If on-going trials confirm this report, then the drug would be worth significantly more than its current valuation. Roche might therefore want to get its hands on Genentech before final test results come out. Big pharmaceuticals prove that while they struggle in coming up with actual merchandise, they recognize a sweet sale when they see one.

Despite the persistence of their pharmaceutical suitors, biotech firms remain uncertain about reciprocal affections. Ernst & Young’s 2011 report shows that biotech firms now face more competition for financing and have less means to push drug trials into later stages of development. Plus, in the wake of the credit crunch, venture capitalists that largely sponsored biotech firms are now actively searching for exit routes in the form of buyouts.

Financial hardships appear to have driven many reluctant biotech firms into the arms of pharmaceutical giants. Large biotech powers like Genentech and ImClone initially held out on offers before grudgingly caving in. Although playing hard to get could just be a bargaining strategy to fetch higher sale prices, cultural differences between the two industries are undeniable. Scientists are worried that extensive drug bureaucracies, themselves unable to innovate, will drag down their creative biotech industry. Many Genentech employees are uneasy about the acquisition, uncertain about how reorganizations in company structure will affect their ability to work.

However hesitant they may be, many biotech firms have accepted big pharmaceuticals’ proposal, signaling the birth of a new recombinant company. These acquisitions could potentially benefit both partners: a boost in innovation for pharmaceuticals and ample research funding for biotech. But thus far, it is hard to tell whether this whirlwind romance will end in bitter squabbling or matrimonial bliss.