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The specter of monopolies and the threat of concentrated market power are getting renewed attention in the age of Amazon and once-unthinkable massive corporate mergers. Market concentration is being blamed for almost everything that is wrong today, from stagnating wages to the rise of fascism.
There are now fewer firms in the US economy since the 1980s, and they are big. The Council of Economic Advisors estimates market concentration has increased in 75% of industries since the 1990s. The dominance of a few firms conjures images of robber barons from the gilded age, squeezing everyone from consumers to workers. But this is a new gilded age, powered by a more interconnected and global economy. As markets change, so might the ideal structure of companies. With that change comes a new understanding of monopoly power, and a reappraisal of its costs, and even possible benefits.
Traditionally, the problem with monopolies is they stick it to consumers. While market concentration has increased since the 1980s, prices on many goods have not. There are fewer airlines, but the prices of flights (after we adjust for inflation) have fallen. Prices on many consumer goods, like washing machines, food, TVs, and electronics (once you control for quality), have also become more affordable, even as there are fewer manufacturers.
Big firms can also limit competition. It’s true that there are now fewer startups and less entrepreneurship, a trend that started in the 1980s and accelerated after 2000. But if the economy were less competitive, you’d expect firms would become less productive, and the opposite is true. One study estimates that the most concentrated industries are the ones where productivity increased the most. It could be the rewards of success: The firms that innovated may have become more productive and taken a large share of the market.
Market concentration may cause new problems, however. We need the right regulations to solve these new problems, but old solutions could make them worse by undermining how firms innovate and compete in the global market. If the issue is a few big companies, the solution isn’t necessarily more smaller companies. After all, it is not clear the economy, or consumers, would be any better off with five different Facebooks. —Allison Shrager
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Our best wishes for a relaxing but thought-filled weekend. Please send any news, comments, baby presents, and artistic advice to firstname.lastname@example.org. Join the next chapter of Quartz by downloading our app and becoming a member. Today’s Weekend Brief was edited by Steve Mollman and Oliver Staley.