The troubling effect of industry consolidation and other forces on productivity, wages, and income inequality
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by
From the Magazine (March–April 2018) · Long read
RedBall Project by Kurt Pershke; Photography by Brit Worgan
Summary. There’s no question that most American industries have become more concentrated. Economists are trying to understand whether this is necessarily a bad thing for competition. The short answer: It’s complicated. Innovation superstars like Google have created winner-take-most markets largely by exploiting network effects, not through predatory behavior. However, research from the wider economy (including the tech sector) uncovers classic signs of unhealthy concentration: rising profits, weak investment, and low business dynamism. The government’s approach to antitrust violations is due for an overhaul. And regulators need to pay more attention to protecting economic vitality and consumer well-being — and less to industry lobbyists.
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In Brief
The Issue
There’s no question that most American industries have become more concentrated. Economists are trying to understand whether this is necessarily a bad thing for competition.
The Evidence
The short answer: It’s complicated. Innovation superstars like Google have created winner-take-most markets largely by exploiting network effects, not through predatory behavior. However, research from the wider economy (including the tech sector) uncovers classic signs of unhealthy concentration: rising profits, weak investment, and low business dynamism.
Recommendations
The government’s approach to antitrust violations is due for an overhaul. And regulators need to pay more attention to protecting economic vitality and consumer well-being—and less to industry lobbyists.
Despite their undeniable popularity, Apple, Amazon, Google, and Facebook are drawing increasing scrutiny from economists, legal scholars, politicians, and policy wonks, who accuse these firms of using their size and strength to crush potential competitors. (Their clout caught the attention of European regulators long ago.) The tech giants pose unique challenges, but they also represent just one piece of a broader story: a troubling phenomenon of too little competition throughout the U.S. economy.
A version of this article appeared in the March–April 2018 issue (pp.106–115) of Harvard Business Review.
Read more on Competitive strategy or related topics Economics and Government policy and regulation
DW David Wessel is a senior fellow in economic studies at the Brookings Institution and director of the Hutchins Center on Fiscal and Monetary Policy, which he joined after 30 years on the staff of The Wall Street Journal. He is the author of two New York Times best-sellers: In Fed We Trust: Ben Bernanke’s War on the Great Panic (2009) and Red Ink: Inside the High Stakes Politics of the Federal Budget (2012) and has shared two Pulitzer Prizes.
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Read more on Competitive strategy or related topics Economics and Government policy and regulation