National Post

Market concentrat­ion in the U.S.

- Lance Lambert

• Competitio­n in the marketplac­e is a good thing. Lower prices. More innovation. Better goods and services. Now we may have too much of that good thing, as big corporatio­ns gobble up the economic pie. Market concentrat­ion has reached a three-decade high and, since the late 1990s, has increased in more than 75 per cent of U. S. industries, according to a working paper given this month at the University of Chicago. Market concentrat­ion is how much of a market, such as the wireless or automobile market, the leaders in that industry control, by revenue.

At the same time, the federal government has brought significan­tly fewer antitrust cases, according to the paper, titled “Is There a Concentrat­ion Problem in America?” In 2014, the Department of Justice didn’t open any cases against monopolies at all, and opened just three in 2015. That compares to 22 cases in 1994.

Gustavo Grullon, a finance professor at Rice University and one of the paper’s three authors, acknowledg­ed they can’t infer a causal relationsh­ip between the increased market concentrat­ion and the decline in the number of antitrust cases, but said he thinks the correlatio­n is strong enough to require “serious attention from regulators.” The other two authors are also business school professors, from Cornell University in Ithaca, N.Y., and York University in Toronto. Their research was cited by a recent Wall Street Journal column.

In the most recent draft of the working paper, the re- searchers, who had already found increasing market concentrat­ion, set out to determine what’s driving the trend. The data they discovered led them to reject several of their hypotheses, including that the uptick was a result of consolidat­ion in unprofitab­le or distressed industries, such as publishing and textiles. The data did suggest, aside from antitrust enforcemen­t, that patents are serving as “technologi­cal barriers to entry,” keeping out potential competitor­s.

“It is an important aspect of the economy, and it’s the responsibi­lity of agencies to figure out if this is an issue or not,” Grullon said.

During Bill Clinton’s presidency, the Justice Department brought a higher number of monopoly cases under Section 2 of the Sherman Antitrust Act, perhaps most notably the 1998 monopoly and anti-competitiv­e practices lawsuit against Microsoft Corp. In all, the Justice Department averaged about 13 cases a year during Clinton’s two terms. This period coincided with a sharp decrease in market concentrat­ion.

Under George W. Bush, the department averaged three cases a year. As a candidate, Barack Obama accused the Bush administra­tion of being too lax when it came to antitrust enforcemen­t, but no crackdown came in his own administra­tion. To the contrary, the government averaged just two antitrust cases a year under Obama. Grullon said market concentrat­ion rose dramatical­ly over both of their presidenci­es.

An early landmark Section 2 case was the 1909 lawsuit against John D. Rockefelle­r’s Standard Oil, which led to the firm’s forced breakup.

“When you have significan­t economic power, that can bring political power and anti- democratic pressures,” said Maurice Stucke, a law professor at the University of Tennessee and a former Justice Department attorney. “We’re starting to see highly concentrat­ed i ndustries, profits accruing to a handful of firms, and fewer startups. And then you look at the impacts it could have on innovation and wealth inequality.”

The Obama administra­tion did block several mergers in its second term, stopping mega-deals like Anthem Inc.’ s merger with Cigna Corp. Stucke said the government needs to crack down harder on mergers, which can contribute to increased market concentrat­ion.

Stucke, who spoke at the conference in Chicago, said attendees were interested in how President Donald Trump might approach antitrust matters.

Trump stumped as a populist, telling voters he would investigat­e Inc. for possible antitrust violations and block AT&T Inc.’s proposed acquisitio­n of Time Warner Inc. The president announced recently that he would nominate a former Justice Department antitrust lawyer, Makan Delrahim, to lead the department’s antitrust division. Delrahim doesn’t see the AT&T deal as a “major antitrust problem,” Bloomberg reported recently.

William Baer, the most recent head of the division, oversaw the 2013 trial of book publishers accused of conspiring with Apple Inc. to fix the prices of e- books. Since then, the average price of an e- book bestseller has declined to about US$ 6 from about US$ 13, according to the Justice Department.


 ?? BEBETO MATTHEWS / THE ASSOCIATED PRESS ?? Market concentrat­ion is how much of a market, such as wireless, the leaders in that industry control, by revenue.
BEBETO MATTHEWS / THE ASSOCIATED PRESS Market concentrat­ion is how much of a market, such as wireless, the leaders in that industry control, by revenue.

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