Story by Neil Bradley, U.S. Chamber of Commerce
Last summer, President Joe Biden issued an executive order to encourage competition in the economy. The central pillar of that order is the belief that the economy has become overconcentrated, which in the White House’s telling reduces competition, lowers wages and even spawns inflation.
Relying on U.S. government data, a new study conducted by NERA Economic Consulting and commissioned by the U.S. Chamber of Commerce, demolishes that pillar.
In an exhaustive analysis of all available economic census data from the past two decades, Robert Kulick found that today’s industrial concentration levels are on par with the levels in 2002. In fact, since 2007, the economy overall has become less concentrated.
Digging deeper into the data one finds that the more concentrated industries have become less concentrated and the least concentrated industries became more concentrated. In other words, there is no trend toward concentration; levels fluctuate over time.
Indeed, Kulick’s analysis shows that even within the sectors of the economy targeted in the executive order, including information technology, consumer banking and lending, agriculture, pharmaceuticals and alcohol, many individual industries exhibit declining rather than increasing concentration and a tendency for increases in concentration to reverse naturally over time.
The bottom line: Industrial concentration is a myth that underpins the administration’s executive order on competition, its narrative around inflation and serves as its excuse to overregulate. America is home to the world’s most vibrant and dynamic economy thanks to vigorous competition in the marketplace that drives new ideas and innovative products and services for consumers.
The Biden administration’s attempt to draw a direct connection between industrial concentration levels and reduced competition fails to hold true. In industries where concentration has risen, these increases are associated with higher levels of economic output, more jobs, and higher wages.
Clearly, industrial concentration is not a measurement that lawmakers and regulators should blindly use to make critical policy decisions and lead the American people to reflexively believe that big is bad.
Perhaps the most interesting finding is that rising concentration can be a direct product of fierce competition. For example, the data shows that the taxi industry and specialty retail stores have become more concentrated. Yet, competition is thriving in these sectors because of new market entrants like ride-sharing services and e-commerce channels.
Consolidation among those facing stiff competition is a natural market reaction necessary to compete more effectively. Without some consolidation, these companies would not have had the resources, reach and expertise to survive. In these instances, the rise in concentration as a result of increased competition has benefited consumers by giving them new services, lower prices and more competitive choices.
Will the Biden administration follow the — economic — science to its logical conclusion: that the overconcentration narrative is a myth? Let’s hope that it reviews this empirical evidence very closely.
Unlike older studies often cited, this paper’s analysis incorporates the most recent available census data. Further, going back to 2002 as a baseline reflects the emergence of technology platforms and debunks the suggestion that merger enforcement under previous administrations led to a wave of persistently increasing industrial concentration in the U.S. economy.
Moreover, the paper explains how prior research, embraced by the apostles of overconcentration, wrongly concluded that slight increases in concentration in certain groups of industries were evidence of meaningful competitive problems.
A careful analysis of the data stripped of any political agenda confirms that concentration does not automatically equate to a loss of competition; in fact, the opposite is often true.
The policy debate on competition and antitrust in Washington needs a reset. The U.S. economy is the envy of the world and is not plagued by a monopoly problem. There is no basis by which to claim industrial concentration has reached excessive and harmful levels, or that U.S. antitrust policy has failed.
Unfortunately, the economic concentration narrative has become the administration’s all-purpose boogeyman. According to the White House, excessive concentration is responsible for rising food prices, gas bills, health care costs and banking fees, for the rise in inflation and for wage stagnation. The administration is using the narrative of rising concentration to revisit antitrust laws, rewrite merger guidelines and redouble its regulatory overreach.
This narrative is demonstrably dishonest. Rather than attack a market-based economy and supplant it with a government-managed economy, the administration should fix its fiscal policies, reduce regulations, and enforce existing antitrust laws. By embracing sensible policies, the administration could encourage more vigorous competition and ultimately lower prices for consumers.