Oligopolies and the location-shopping racket
We've been talking about this for a while, but it's interesting to read a lucid short article by James Surowecki in the New Yorker on the power games big companies play with their oligopsony on key locations. As the article "It Pays to Stay", 12/1/32004) puts it:
Across the US, cities and states routinely lavish on companies what economists call "location-based incentives"
The story details the tax credits, property tax rebates, and eminent domain help that the city of Toledo, Ohio, gave to Daimler-Chrysler. That company, which had a Toledo plant, wanted to tear it down and build a new one, with the threat that they might just pack up and leave town. The largesse of the city convinced them to stay. This kind of corporate welfare, the article explains, really took off in the 1970s, as cities competed to attract business and jobs to their communities. And companies "have mastered the location-shopping racket, playing cities against each other in search of a sweetheart deal."
Aside from wasting taxpayer money, these incentives involve the local government discriminating, choosing one business over another. In general, it's the biggest, most dominant companies that get the welfare breaks while the smaller, local businesses not only are left on their own, but have to pay higher takes to subsidize what may even be a rival.
The article points out that "states and cities are in a prisoner's dilemma as long as one town can woo a corporation with baubles and tax breaks, every town has to be willing to do so." The only hope may be a court case base don the Toledo case, where a federal district court struck down the tax breaks as illegal restraint of interstate commerce. That decision is on appeal.
8:54:07 PM 
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