Market power trends: evidence from industry studies
Nathan H. Miller, in this paper, reviews and synthesizes research on the rise of market power, focusing on industries such as consumer packaged goods, portland cement, wholesaling, steel, automobile manufacturing, and airlines.
Key findings:
- The sales-weighted average markup in the U.S. has increased from 1.21 in 1980 to 1.61 in 2016.
- Rising markups are often due to marginal cost reductions rather than price increases, which is consistent with technological innovation rather than weakening competitive pressure.
- In many industries, technological change has led to improved productive efficiency or gains in product quality, often resulting in consumer benefits despite potential increases in market power.
- The studies do not consistently point to weak antitrust enforcement as a major contributor to greater market power.
- The impact of technological change varies across industries:
– In some industries (e.g., consumer packaged goods, cement, wholesaling), it has led to higher markups but not necessarily higher prices.
– In others (e.g., steel, automobiles), it has resulted in lower markups.
Miller concludes that while technological change appears to be the primary driver of long-term economic outcomes in many industries, this does not diminish the importance of stringent antitrust enforcement.
Industrial Organization and The Rise of Market Power
Author: Nathan H. Miller
From: Georgetown University
Examining claims of declining U.S. competition
Similarly, in this paper, Carl Shapiro and Ali Yurukoglu review and analyze empirical evidence on trends in competition and market power in the U.S. economy over recent decades, focusing on three main areas:
1) Market concentration
2) Price/cost markups and profits
3) Merger retrospectives
Unlike Nathan Miller above who focuses on specific industries, Shapiro and Yurukoglu focus on two different definitions of competition: the “decline-in-competition” hypothesis from the “competition-in-action” hypothesis which implies that many observed changes reflect healthy competition delivering benefits.
Key findings:
- The empirical evidence does not show a widespread decline in competition or provide a basis for dramatic changes in antitrust policy.
- Measures of market concentration using broad industry categories are not informative about market power. Studies using more appropriate market definitions find flat or decreasing concentration.
- Estimates of rising markups face significant measurement challenges. The trends do not clearly distinguish between declining competition vs. efficient firms growing.
- Merger retrospective studies show mixed results across industries, not systematic harms.
- Evidence on other metrics like labor share and business dynamism is also mixed and does not clearly support declining competition.
In summary, the authors argue the evidence does not support claims of a broad decline in competition, and calls for more nuanced, industry-specific analysis to guide antitrust policy.
Trends in Competition in the United States: What Does the Evidence Show?
Authors: Carl Shapiro, Ali Yurukoglu
From: University of California – Berkeley, Stanford University
