Corporate Concentration in the US

Consider the micro and macro impacts of fewer and fewer firms in a sector, leading to more and more corporate power. Should the government intervene? How should the government intervene?

On Sunday, New York Times opinion columnist David Leonhardt published some of the results of the report before its release, including a chart showing how concentration has shifted. The visualization demonstrates just how much the market share of just two companies in many industries has increased since the turn of the century.

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David Leonhardt

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In one industry after another, the biggest companies have increased their market share over the last 15 years.

That’s a major reason that income growth has been weak and entrepreneurship has declined. https://nyti.ms/2DKivnv 

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In more traditional sectors, such as hardware stores, tobacco, and railroads, concentration is on the rise. And in technology-related fields, including smartphones, social media, and cellphones, in just in the past five or so years, it’s even higher.

Leonhardt points to mergers as a reason for consolidation — namely, competitors combining, or one buying up others. But he also notes it’s more than that:

Another is the power of so-called network effects — in which the growth of, say, Facebook makes more people want to use it. True, a few industries have become less concentrated, but they are exceptions. If anything, the chart here understates consolidation, because it doesn’t yet cover energy, telecommunications and some other areas. It also doesn’t cover local monopolies, such as hospitals that are dominant enough to drive up prices.

Why corporate concentration matters

A lot of the concern about corporate concentration surrounds its potential to drive up prices. The fewer options there are, the fewer places consumers have to shop for goods and services, and the less pressure for competitors to keep prices down.

But monopolization can have much broader implications.

“Monopolization across the economy, I think, is the core reason for all of these economic and social problems that we’re talking about that for years have been a headwind into progress on anything from raising wages to entrepreneurship to reducing political polarization to reducing corruption and power in politics,” Miller said.

Concentration can translate to something called “monopsony” power, where a large buyer controls a big portion of the market. (In monopolies, the focus is on the power of the seller.) A company with a monopsony has outsize control over suppliers and workers.

One potential example of this is Amazon, which could eventually become so big that it can control what shipping companies such as FedEx and UPS charge it, and, in areas where it becomes a dominant buyer of labor, could contribute to pushing employee wages down. (To be sure, Amazon last month announced it would raise its minimum wage for workers to $15 an hour.) Situations like that potential one, some scholars argue, can lead to a broader drag on the overall economy.

The Open Markets Institute used data from industry market research firm IBISWorld to create its Monday report, which is one of three. The Federal Trade Commission stopped collecting and publishing data on industry concentration in 1981.

Even if many consumers don’t immediately notice concentration, it’s present in their everyday lives — it’s why millions of homes only have one internet provider, for example. And it’s getting worse: The Open Markets Institute report lists four cellphone providers that control 98 percent of the market — Verizon, AT&T, T-Mobile, and Sprint. T-Mobile and Sprint announced plans to merge earlier this year. If the deal goes through, the arena will be down to three.