Is lack of competition strangling the U.S. economy?

bizjournals.comDespite their undeniable popularity, Apple, Amazon.com, Google and Facebook are drawing increasing scrutiny from economists, legal scholars and politicians, who accuse these firms of using their size and strength to crush potential competitors. The tech giants pose unique challenges, but they also represent just one piece of a broader story: too little competition throughout the U.S. economy.

There’s no question that most industries are becoming more concentrated. Big firms account for higher shares of industry revenue and are reaping historically large profits relative to their investment. This is not necessarily a bad thing. As economists point out, concentration and higher profits can be benign consequences of technological innovation.

Mounting evidence, however, strongly suggests that harmful forces are also at play. Research shows that incumbent firms in a wide range of industries — airlines, beer, pharmaceuticals, hospitals — are wielding market power in ways that prevent rivals from emerging and thriving. With waning competitive pressure, productivity growth slows, wages stagnate and the gap between winners and losers widens.

The underlying problem is not “bigness” per se. Rather, it’s the combined effect of size, concentration and, importantly, incumbent-friendly regulation on the healthy competition that propels economic growth.

Ten years ago, the top four U.S. airlines collected 41% of the industry’s revenue. Today, they collect 65%. Although competition is stiff on the most heavily traveled air routes, 97% of routes between pairs of cities have so few competitors that standard antitrust metrics would deem them “highly concentrated.”…

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