Over the past several years, advocates of much stricter antitrust laws and enforcement have grounded their case on a simple claim: U.S. industry concentration (monopoly) has increased to crisis proportions and the only solution is a radical overhaul of our nation’s antitrust laws, imposing much stricter limits on mergers and breaking up leading companies.
There is only one problem: Concentration has not increased, even though the “fact” of rising concentration has been picked up by a large number of pundits and commentators. The Economist got the ball rolling in 2016, concluding that two-thirds of the economy’s roughly 900 industries had become more concentrated between 1997 and 2012. Paul Krugman writes that “growing monopoly power is a big problem for the U.S. economy.” The anti-business advocacy group Open Markets refers to “America’s concentration crisis.” And now leading politicians parrot the claims. Senator Amy Klobuchar (D., Minn.), chair of the Senate Subcommittee on Competition Policy, Antitrust, and Consumer Rights, states: “We are seeing higher levels of market concentration across our economy.” Congressman David Cicilline (D., R.I.), chair of the House Antitrust Subcommittee, warns that America has a “monopoly problem.” And new Federal Trade Commission chair Lina Khan alleges that the United States faces a “sweeping market power problem.”
You’d think that pundits, advocates, and public officials would make some attempt to rely on data. But alas, that is not the case. The definitive source of data to measure economic concentration comes from the U.S. Census Bureau’s newly released 2017 Economic Census data for over 850 industries, from cane-sugar manufacturing to cable-TV providers. Comparing data from 2017 (the most recent year for which figures are available) and 2002 shows what has really happened with industry concentration. And the data are quite clear: This is much ado about little.
Just 35 of 851 industries are highly concentrated, with the top four firms’ sales accounting for more than 80 percent of industry sales (this is called the C4 ratio). In 2002, 62 percent of industry output was from industries with low levels of concentration (a C4 ratio below 50 percent), but by 2017, 80 percent of industries had low concentration. Moreover, of the 115 industries with a C4 ratio of 60 percent or more in 2002, the majority got less concentrated. Overall, the average C4 ratio for American industry increased only slightly, from 34.3 percent to 35.3 percent.
In addition, many highly concentrated industries, such as luggage and leather-goods stores (a C4 ratio of 81 percent), performing-arts companies, geothermal power generation, and paint and wallpaper stores, all face significant competition from firms in other industries, such as movie theaters, department stores, and natural-gas power generation. Moreover, over those 15 years, imports as a share of GDP have increased, adding even more competition in many sectors. And technology has created new competitors in different industries. Satellite radio and smartphones now compete with over-the-air radio stations, for example.
Anti-corporate populists have taken particular aim at “Big Tech.” However, of the 135 advanced-technology industries, only eight have C4 ratios above 80, with a majority of sectors becoming less concentrated by 2017. And most sectors still face tough competition. For example, even with the rise of Amazon, the C4 ratio of electronic shopping and mail-order houses increased, but only from 24 percent to 37 percent.
Finally, even in sectors where concentration grew to high levels, consumers usually benefited. The C4 ratio in the wireless-telecommunications industry increased from 63 percent to 86 percent. But industry productivity grew 84 percent faster than economy-wide productivity, while capital-investment rates doubled and nominal prices fell by 31 percent from 2011 to 2020.
But surely firms in the few concentrated industries must be making huge profits and jacking up prices, right? In fact, prices rose less from 2002 to 2017 in industries with higher levels of concentration than did the overall producer price index. And looking at the 80 industries for which both IRS profit data and Census Bureau concentration data were available, it turns out that there is no statistical relationship between profits and concentration. This is consistent with the finding that U.S. non-financial domestic business profits were no higher in the few years before COVID than in the late 1970s, when antitrust regulations were supposedly more vigorously enforced.
As Daniel Patrick Moynihan once famously stated, everyone is entitled to his own opinion, but not his own facts. It is time for the debate about “monopoly” and industry concentration to be grounded in facts.
Something to Consider
If you enjoyed this article, we have a proposition for you: Join NRPLUS. Members get all of our content on the site including the digital magazine and archives, no paywalls or content meters, an advertising-minimal experience, and unique access to our writers and editors (through conference calls, social media groups, and more). And importantly, NRPLUS members help keep NR going.