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| As Competition Flags, the Rip of Inequality Widens | As Competition Flags, the Rip of Inequality Widens |
| (about 1 hour later) | |
| The Justice Department is expected to rule soon on the biggest beer merger ever: a $100 billion-plus combination of Anheuser-Busch InBev and SABMiller into a colossus that will reap some $3 out of every $10 spent on beer around the world. | The Justice Department is expected to rule soon on the biggest beer merger ever: a $100 billion-plus combination of Anheuser-Busch InBev and SABMiller into a colossus that will reap some $3 out of every $10 spent on beer around the world. |
| The prospect strikes fear into the hearts of myriad craft brewers in the United States that rely on Anheuser-Busch’s distribution network, the biggest in the country. Will they get their double IPAs and Russian imperial stouts to market if the new leviathan shuts them off to bolster flagging sales of its own Bud and Pilsner Urquell? | The prospect strikes fear into the hearts of myriad craft brewers in the United States that rely on Anheuser-Busch’s distribution network, the biggest in the country. Will they get their double IPAs and Russian imperial stouts to market if the new leviathan shuts them off to bolster flagging sales of its own Bud and Pilsner Urquell? |
| The stakes are higher than whether you will be able to find your favorite Belgian-style lambic at the corner store. The new merger amounts to another step in the long decline of competition in many American industries. | The stakes are higher than whether you will be able to find your favorite Belgian-style lambic at the corner store. The new merger amounts to another step in the long decline of competition in many American industries. |
| It is a decline that stunts entrepreneurship, hinders workers’ mobility and slows productivity growth. Slowing this trend has emerged as a tempting new avenue to address the plight of a beleaguered working class. Reviving flagging American competition might even help stop America’s ever-widening inequality. | It is a decline that stunts entrepreneurship, hinders workers’ mobility and slows productivity growth. Slowing this trend has emerged as a tempting new avenue to address the plight of a beleaguered working class. Reviving flagging American competition might even help stop America’s ever-widening inequality. |
| In April, President Obama issued an executive order calling on government agencies to look for ways to bolster competition in the industries they monitor. | In April, President Obama issued an executive order calling on government agencies to look for ways to bolster competition in the industries they monitor. |
| Hillary Clinton drew competition into the campaign trail, chastising dominant corporations for “using their power to raise prices, limit choices for consumers, lower wages for workers and hold back competition from start-ups and small businesses.” | Hillary Clinton drew competition into the campaign trail, chastising dominant corporations for “using their power to raise prices, limit choices for consumers, lower wages for workers and hold back competition from start-ups and small businesses.” |
| And Senator Elizabeth Warren, the Massachusetts Democrat, made headlines last month when she called for antitrust agencies to crack down on Silicon Valley powers like Apple, Facebook and Google. | And Senator Elizabeth Warren, the Massachusetts Democrat, made headlines last month when she called for antitrust agencies to crack down on Silicon Valley powers like Apple, Facebook and Google. |
| Jason Furman, the chairman of President Obama’s Council of Economic Advisers, and Peter Orszag, former head of the White House’s Office of Management and Budget, laid out some of the new thinking in a presentation last fall at Columbia University. | Jason Furman, the chairman of President Obama’s Council of Economic Advisers, and Peter Orszag, former head of the White House’s Office of Management and Budget, laid out some of the new thinking in a presentation last fall at Columbia University. |
| Monopoly rents — the excess returns a company reaps when it does not have to deal with pesky competitors keeping prices down — could worsen inequality in a variety of ways. Joseph Stiglitz, the Nobel laureate from Columbia University who served as top economic adviser to President Bill Clinton, has asserted that exorbitant corporate profits are being run up through oligopolies and passed along to stockholders, raising the share of national income accruing to the rich. | Monopoly rents — the excess returns a company reaps when it does not have to deal with pesky competitors keeping prices down — could worsen inequality in a variety of ways. Joseph Stiglitz, the Nobel laureate from Columbia University who served as top economic adviser to President Bill Clinton, has asserted that exorbitant corporate profits are being run up through oligopolies and passed along to stockholders, raising the share of national income accruing to the rich. |
| This may not fit snugly with the data, though. Notably, the rising share of income going to the top 1 percent is not driven mainly by overstuffed returns on investment but by the growing inequality in wages. Mr. Furman and Mr. Orszag suggest a different mechanism to fit this trend: Companies that reap monopoly rents are paying their workers more, sharing some of their rents with them. While that might sound a bit more egalitarian, it could be equally insidious. | This may not fit snugly with the data, though. Notably, the rising share of income going to the top 1 percent is not driven mainly by overstuffed returns on investment but by the growing inequality in wages. Mr. Furman and Mr. Orszag suggest a different mechanism to fit this trend: Companies that reap monopoly rents are paying their workers more, sharing some of their rents with them. While that might sound a bit more egalitarian, it could be equally insidious. |
| There is plenty of evidence that corporate concentration is on the rise. Mr. Furman and Mr. Orszag report that between 1997 and 2007 the market share of the 50 largest companies increased in three-fourths of the broad industry sectors followed by the census. | There is plenty of evidence that corporate concentration is on the rise. Mr. Furman and Mr. Orszag report that between 1997 and 2007 the market share of the 50 largest companies increased in three-fourths of the broad industry sectors followed by the census. |
| In 1985 the top 10 banks had under 20 percent of banking assets. By 2010 they had more than half. Big Pharma too has become bigger, buying niche laboratories. So have hospitals: Between 2010 and 2014 there were 457 mergers in the hospital sector. | In 1985 the top 10 banks had under 20 percent of banking assets. By 2010 they had more than half. Big Pharma too has become bigger, buying niche laboratories. So have hospitals: Between 2010 and 2014 there were 457 mergers in the hospital sector. |
| Studies have found increased concentration in agricultural businesses and wireless communications as well. And as Senator Warren observed, critical technology markets are often controlled by a single player. Among airlines, there are only four major United States carriers left. | Studies have found increased concentration in agricultural businesses and wireless communications as well. And as Senator Warren observed, critical technology markets are often controlled by a single player. Among airlines, there are only four major United States carriers left. |
| Not everybody buys the new analysis linking market power and inequality. “This facile assumption that more antitrust means greater equality and wealth is just way overbroad,” wrote Daniel Crane, an expert on antitrust law at the University of Michigan. | Not everybody buys the new analysis linking market power and inequality. “This facile assumption that more antitrust means greater equality and wealth is just way overbroad,” wrote Daniel Crane, an expert on antitrust law at the University of Michigan. |
| Martin Gaynor, a professor at Carnegie Mellon University and former chief economist at the Federal Trade Commission, noted that competition policy was about increasing the economy’s efficiency, not changing the distribution of the spoils. “I don’t think antitrust is a major tool for addressing inequality,” he told me. | Martin Gaynor, a professor at Carnegie Mellon University and former chief economist at the Federal Trade Commission, noted that competition policy was about increasing the economy’s efficiency, not changing the distribution of the spoils. “I don’t think antitrust is a major tool for addressing inequality,” he told me. |
| Still, it would seem foolhardy to ignore the growing footprint of dominant companies, strutting their stuff across the broader economy. | Still, it would seem foolhardy to ignore the growing footprint of dominant companies, strutting their stuff across the broader economy. |
| The best-understood downside comes from rising prices. John Kwoka, an antitrust expert at Northeastern University, made a study of dozens of mergers that were reviewed and ultimately approved by regulators. In 75 to 80 percent of the cases, they led to substantial price increases. | The best-understood downside comes from rising prices. John Kwoka, an antitrust expert at Northeastern University, made a study of dozens of mergers that were reviewed and ultimately approved by regulators. In 75 to 80 percent of the cases, they led to substantial price increases. |
| There are more complex costs to consider. F. Michael Scherer, an antitrust economist at Harvard’s Kennedy School, noted that as soon as the pharmaceutical giant Merck was cleared to take over Cubist Pharmaceuticals, a smaller lab that had developed a promising new antibiotic, it eliminated Cubist’s research and development staff — curtailing research into several other promising drugs. | There are more complex costs to consider. F. Michael Scherer, an antitrust economist at Harvard’s Kennedy School, noted that as soon as the pharmaceutical giant Merck was cleared to take over Cubist Pharmaceuticals, a smaller lab that had developed a promising new antibiotic, it eliminated Cubist’s research and development staff — curtailing research into several other promising drugs. |
| The existence of Facebook might provide an incentive for some kid in a garage to design a cool new app for the social media giant. But Facebook might also have an interest in squelching innovations that do not fit its business model. | The existence of Facebook might provide an incentive for some kid in a garage to design a cool new app for the social media giant. But Facebook might also have an interest in squelching innovations that do not fit its business model. |
| Market power can throw sand in the economy’s cogs in several ways. For one, it will make more sense for dominant companies to focus on protecting their rents than to risk money investing in new ventures. New entrepreneurs will think twice before trying to challenge a dominant firm. | Market power can throw sand in the economy’s cogs in several ways. For one, it will make more sense for dominant companies to focus on protecting their rents than to risk money investing in new ventures. New entrepreneurs will think twice before trying to challenge a dominant firm. |
| Anticompetitive behavior can weigh on wages too. A couple of years ago Apple, Google, Adobe and Intel were caught colluding not to poach each other’s engineers. Similarly, seven hospitals in suburban Detroit were caught colluding to keep nurses’ wages low. | Anticompetitive behavior can weigh on wages too. A couple of years ago Apple, Google, Adobe and Intel were caught colluding not to poach each other’s engineers. Similarly, seven hospitals in suburban Detroit were caught colluding to keep nurses’ wages low. |
| What about inequality? Workers who share in monopoly rents will always be better off than those who do not. This might explain the Communications Workers of America’s support for AT&T’s attempted acquisition of its wireless rival T-Mobile, which was struck down for being blatantly anticompetitive. | What about inequality? Workers who share in monopoly rents will always be better off than those who do not. This might explain the Communications Workers of America’s support for AT&T’s attempted acquisition of its wireless rival T-Mobile, which was struck down for being blatantly anticompetitive. |
| How did the American economy get so concentrated? Technology surely helped. Tech giants like Google and Facebook benefit from economies of scale and network effects. It costs nothing to serve an additional search. Consumers will be drawn to the social media platforms that already have more users. | How did the American economy get so concentrated? Technology surely helped. Tech giants like Google and Facebook benefit from economies of scale and network effects. It costs nothing to serve an additional search. Consumers will be drawn to the social media platforms that already have more users. |
| Government watchdogs also messed up. Concerned only about local competition between bank branches, they allowed a huge nationwide concentration. “Antitrusters stood by and sucked their thumbs while these mergers got through,” Professor Scherer told me. Conditions imposed on troublesome mergers — like orders to sell assets or to refrain from certain behaviors — were mostly ineffective, Professor Kwoka said. | Government watchdogs also messed up. Concerned only about local competition between bank branches, they allowed a huge nationwide concentration. “Antitrusters stood by and sucked their thumbs while these mergers got through,” Professor Scherer told me. Conditions imposed on troublesome mergers — like orders to sell assets or to refrain from certain behaviors — were mostly ineffective, Professor Kwoka said. |
| How to fix it? Professor Kwoka suggests that when a given industry is already fairly concentrated, any future merger should be presumed to be anticompetitive, taking the burden of proof off the regulator’s shoulders and putting the onus on the merging companies to prove it is not. Regulations also offer a promising tool: How about demanding that the Food and Drug Administration approve generic drugs more quickly? | How to fix it? Professor Kwoka suggests that when a given industry is already fairly concentrated, any future merger should be presumed to be anticompetitive, taking the burden of proof off the regulator’s shoulders and putting the onus on the merging companies to prove it is not. Regulations also offer a promising tool: How about demanding that the Food and Drug Administration approve generic drugs more quickly? |
| But what might help most is not some narrow change in the procedures to examine business combinations but a broadening of the objectives of competition policy. Antitrust economists might hate this idea, but perhaps it’s time to broaden the discussion beyond how a decline in competition may hurt consumers, and to consider things other than narrow economic efficiency. That would include the way market concentration affects the distribution of the fruits of economic growth. It’s not just about the price of beer. |