Monopoly power does not seem to be up at the actual market level

Using U.S. NETS data, we present evidence that the positive trend observed in national product-market concentration between 1990 and 2014 becomes a negative trend when we focus on measures of local concentration. We document diverging trends for several geographic definitions of local markets. SIC 8 industries with diverging trends are pervasive across sectors. In these industries, top firms have contributed to the amplification of both trends. When a top firm opens a plant, local concentration declines and remains lower for at least 7 years. Our findings, therefore, reconcile the increasing national role of large firms with falling local concentration, and a likely more competitive local environment.

That is from a new NBER working paper by Esteban Rossi-Hansberg, Pierre-Daniel Sarte, and Nicholas Trachter.


"Concentration" is NOT the same thing as "Monopoly Power!" High concentration could be equally consistent with either high or low markups/monopoly power.

Sloppy title for Tyler. Please change it!

To be clear, this is the title Prof. Cowen wants to have, not the one you want him to have, if you get his drift.

Mainly because Prof. Cowen is doing his best to both convince a broad swath of his readers that monopoly is a good thing, while at the same time actually saying monopoly is rare.

Which means, if one were to solve for the public policy equilibrium, the U.S. needs more monopolies. Small steps and all that.

But unlike the U.S., Germany is not dominated by greedy private monopolies, so you should be able to get your meds for your Cowen Derangement Syndrome without completely bankrupting its health care system.

Can someone talk me through this "adjusted HHI" business? I feel like my brain is melting just reading this:

"Because [the HHI] is bounded below by the inverse of the number of enterprises, comparisons of the HHI between groupings with different numbers of enterprises can be somewhat difficult."

"A grouping with only a handful of enterprises will tend to have a much higher HHI than a grouping with dozens of enterprises (or alternatively, the HHI in an industry-geography pair will tend to decrease over time if the number of enterprises in that pair increases)."

Well.... yes. That's the whole point of the HHI. That's what concentration means: how many enterprises are their in the market, and how big are they? How is the thing they're describing a bug that needs fixing rather than a feature?

Thus, when Walmart opens a store in a small town, the economic effects are positive (lower prices) and negative (local store closures). Do the positives outweigh the negative? Certainly not for the local store owners. How about the effect on entrepreneurship? In most small towns, entrepreneurship means a small business, whether a clothing store or a hardware store. After Walmart comes to town, what are the opportunities for entrepreneurship in the traditional local businesses. I have commented many times that small business is the core of American business, that small business owners are the believers in economic mobility in America and active members of the chamber of commerce. Walmart coming to town and the increasing share of Amazon and other internet retail vendors have decimated local businesses. Without opportunities for entrepreneurship, young and motivated men and women have few choices other than working for large employers, even if it means vacating the preferred place to reside and relocating to the place where the large employer can negotiate the largest number of tax breaks.

More like you used to have 10 locally owned stores/restaurants none part of chains now you have 11 and 6 are parts of chains.

There is also evidence that in some industries, increased concentration at a higher level that leaves local market concentration the same can still result in increased prices:

The situation presented is not a monopoly. A big national competing with a local champion means there are at least 2 competitors. 'Mono' in monopoly means 'one'.

Comments for this post are closed