Growing Oligopolies, Prices, Output, and Productivity

The real monopoly problems in our economy are not the firms that push up some very particular concentration indices, rather they are the small, local monopolies, hospitals, and the public education system.  Here is a new investigation (AEA gate) from Sharat Ganapati, you will note that the bold emphasis has been added by yours truly:

American industries have grown more concentrated over the last 40 years. In the absence of productivity innovation, this should lead to price hikes and output reductions, decreasing consumer welfare. With US census data from 1972 to 2012, I use price data to disentangle revenue from output. Industry-level estimates show that concentration increases are positively correlated to productivity and real output growth, uncorrelated with price changes and overall payroll, and negatively correlated with labor’s revenue share. I rationalize these results in a simple model of competition. Productive industries (with growing oligopolists) expand real output and hold down prices, raising consumer welfare, while maintaining or reducing their workforces, lowering labor’s share of output.

That is from the new issue of American Economic Journal: Microeconomics.  Rooftops!  Other research has pointed in the same direction.  Pennsylvania, Ave.: please do not split up America’s best and most productive firms.


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