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Protecting Competition in the American Economy: Merger Control, Tech Titans, Labor Markets
Abstract
Accumulating evidence points to the need for more vigorous antitrust enforcement in the United States in three areas. First, stricter merger control is warranted in an economy where large, highly efficient and profitable “superstar” firms account for an increasing share of economic activity. Evidence from merger retrospectives further supports the conclusion that stricter merger control is needed. Second, greater vigilance is needed to prevent dominant firms, including the tech titans, from engaging in exclusionary conduct. The systematic shrinking of the scope of the Sherman Act by the Supreme Court over the past 40 years may make this difficult. Third, greater antitrust scrutiny should be given to the monopsony power of employers in labor markets.
... Due to its vigilant oversight of legal issues and patent portfolios, the corporation can navigate the complex landscape of intellectual property regulations on a worldwide basis (Bauerle, 2019). According to Shapiro (2019), Sony takes preventative measures to lessen the likelihood of intellectual property infringement so that its technological advances can be ensured in various regions. With direct funding, comprehensive cybersecurity measures can also be more easily implemented. ...
... Also, with its direct control over distribution, CEMEX can successfully manage the complicated dynamics of local supply chains and retail marketplaces. According to Shapiro (2019), Sony, being a tech-driven firm, incorporates local preferences into tech customizations through direct investment. As part of this process, Sony adapts the features, interfaces, and capabilities to match the specific technological requirements of different markets. ...
... Also, by circumventing the markups linked to third-party suppliers or intermediaries, these companies establish a streamlined cost structure and over time, operational efficiency improves as a deeper comprehension of local market dynamics, resulting in sustained cost savings (Limakrisna et al., 2018;Dunning & Lundan, 2008;Shapiro, 2019). According to Nayak et al. (2020), direct investment helps with establishing a strategic position in foreign markets, and this strategy is exhibited by companies such as PepsiCo, CEMEX, and Sony, who cater to local preferences, optimize their distribution methods, and customize their technology capabilities. ...
Examining the complex international of marketplace entry strategies, this research zeroes in at the direct investment strategies utilized by market heavyweights like Sony, PepsiCo, and CEMEX. The studies elucidate the numerous benefits of direct investment in overseas markets by inspecting the strategic selections and operational dynamics of these multinational businesses. The studies indicate, via a thorough literature analysis and case studies, that direct funding offers organizations unrivaled manipulation, flexibility, and marketplace insights; this, in flip, helps them adapt their offerings to one of a kind cultural context, reduce regulatory chance, and shield their highbrow assets. The study also assesses government guidelines on FDI, drawing interest to the necessity to strike a balance among protecting the kingdom's protection and encouraging free alternatives. Furthermore, it delves into the impact of political ideologies on foreign direct funding guidelines, highlighting the vital position that they've in molding funding environments. In sum, the findings of this look at have important outcomes for lecturers, businesspeople, and politicians on the strategic imperatives and problems of entering new markets.
... According to [17], many companies look forward to leveraging technology to remain competitive in the digital age. An example is Microsoft's 2016 acquisition of LinkedIn. ...
... For most companies, the incentive for M&A activities is to access technology and innovation, which is critical to adapting to the market and staying afloat amidst the changing market conditions. According to [17], information technology plays a role in obtaining synergies that lead to the success of mergers and acquisitions. One of the ways to do this is through early engagement and alignment. ...
This paper explores the issue of MA as it pertains to Supply chain elements such as Enterprise Resource Planning (ERP), the role of technology, and supply chain efficiency. By exploring the issue further, the research seeks to assess the recent trend of increased mergers and acquisitions (MA) and how the activities affect the supply chain management (SCM) role. The results are important in understanding current trends in SCM when it comes to mergers and acquisitions. The discussion covered the role that COVID-19 played in increased trends in MA and technology's role in MA activities and success. The ultimate goal is to understand how technology and COVID-19 impact MA activities and how, in turn, the supply chain management role gets affected.
... them are subject to a lively debate. 3 Some authors (e.g., Eeckhout, 2021;Grullon et al., 2020;Philippon, 2019;Shapiro, 2019) argue that lax merger control is at least partially responsible for these trends, particularly in the United States, whereas others emphasize the role of technological change (e.g., digitization and automation) and globalization (e.g., Autor et al., 2020;Bessen, 2020). These alternative explanations are not necessarily contradicting each other as several forces can be at play simultaneously. ...
... Low-concentration industries are less likely to be affected negatively by increasing concentration; indeed, it might be a sign of growing efficiency. But where concentration is already high, it is unlikely that further economies of scale can be exploited since a minimum efficient scale would have already been 3 Akcigit et al. (2021), Autor et al. (2020), Berry et al. (2019), Gutiérrez and Philippon (2020), Shapiro (2018Shapiro ( , 2019, Werden and Froeb (2018). 4 Contracts COMP/2018/002 and COMP/2020/013. 5 The EU4 + UK roughly corresponds to 80 percent of the GDP of EU27 + UK. reached, whereas market power can well be detrimental to consumers. ...
The paper provides new evidence on proxy indicators of market power for major European countries. The data show moderately increasing average industry concentration over the last two decades, a considerably increasing proportion of high-concentration industries, and an overall tendency toward oligopolistic structure. Estimates of aggregate profitability also show a sustained increase over the recent decades for European economies. Although the academic and policy debate is not settled as to whether the causes of these trends are policy driven or reflect technological improvement, our findings suggest that competition policy is likely to face more challenges as large companies are becoming more common in more and more industries.
... That research argues that concentration across the economy has been growing; that the growth of concentration has had wideranging impacts on prices, wages, investment, and innovation, and that these impacts have occurred at levels of concentration that fall well below the levels currently of concern in Merger Guidelines. The work by macro, labor, and finance economists complements other recent research by industrial organization economists arguing that merger policy has erred on the side of high concentration, and that policy should be much more aggressive toward combinations of rivals (Ashenfelter, Hosken, & Weinberg, 2013;Kwoka, 2015;Shapiro, 2019). ...
... Economists have been actively involved in arguing for stronger antitrust enforcement, particularly with regard to merger policy as well as the treatment of certain practices that arguably facilitate the extension and use of market power (Baker, 2019;Shapiro, 2019;White, 2021). Their arguments are based on current applications of economic analysis, combined with evidence and judgments on the extent of market power and the effects on production and prices. ...
This chapter examines concentration in agribusiness and in agricultural production: its definition and measurement, its historical evolution in economics generally and agricultural economics specifically, patterns of concentration change, the drivers behind concentration, and the use of concentration measures in policy and research. We provide discussions of concentration and important research literature for each of the main stages of the marketing chain from farm production to food retailing. The chapter concludes with a discussion of the impacts of concentration beyond pricing in food and agricultural markets including environmental outcomes, innovation, and politics.
... Kwoka (2015) presents a thorough analysis of merger retrospectives and finds unambiguous evidence that most of the studied mergers resulted in higher prices and competitive harm. For additional discussions, see Shapiro (2018Shapiro ( , 2019, and the references therein. 12 U.S. Department of Justice and the Federal Trade Commission (2010) (henceforth, HMGs). ...
The 2023 Merger Guidelines (MGs) change the Agencies’ narrative regarding non-horizontal mergers. They follow a four-pronged approach: (1) They blend horizontal and non-horizontal mergers. (2) They simplify the narrative about non-horizontal mergers. (3) They consolidate and broaden the theories of harm in non-horizontal mergers. (4) They blend economics and law analysis. In this article, we elaborate on these points. We discuss how the MGs’ anticompetitive presumptions apply to non-horizontal mergers, relate them to the economics literature, and provide examples. We finish discussing the economic rationale of the structural presumption involving rivals’ exit concerns due to the exercise of market power and propose a path forward.
... Incumbents might be acquiring high productivity entrants for different reasons: to prevent future competitors or to benefit from their productivity. This is in line with the superstar-firm idea that powerful incumbents defend their market positions by preventing competition, rather than competing (Shapiro, 2019). While we observe that these firms are exiting due to M&A activity, we do not know which new firms are created through 31 M&A. ...
... Incumbents might be acquiring high productivity entrants for different reasons: to prevent future competitors or to benefit from their productivity. This is in line with the superstar-firm idea that powerful incumbents defend their market positions by preventing competition, rather than competing (Shapiro, 2019). While we observe that these firms are exiting due to M&A activity, we do not know which new firms are created through 31 M&A. ...
This study examines the decline in firm dynamism within the Netherlands, potentially linked to the deceleration of productivity growth. We utilise a rich microdata set covering the period 2006-2016, encompassing nearly all Dutch corporations. This dataset facilitates an evaluation of start-ups' and exiting firms' contributions to Total Factor Productivity (TFP) growth across various industries, employing the Melitz and Polanec (2015) decomposition approach. Our findings reveal that in service sectors, the creative destruction hypothesis is substantiated, as start-ups and exiting firms positively impact overall TFP growth. In contrast, TFP growth in manufacturing is primarily driven by incumbent firms. Entry and exit dynamics in this context exert minimal or even negative influence on TFP growth. Although entrants in manufacturing initially display lower productivity than incumbents, their productivity growth outpaces that of incumbents. In services, entrants commence operations with higher initial productivity, a trait that gradually diminishes over time. Generally, entrants with relatively low productivity are predisposed to exit within five years, aligning with the 'up-or-out' pattern.
... The rapid growth of platforms has also become a central concern for regulators. Partly, this is because of the potential for market dominance, especially by the largest technology companies (Shapiro, 2019). The pricing and business models typically used by platforms can make it difficult to apply existing regulations. ...
In this chapter, we describe platforms and their structure and how that structure differs from traditional linear value chains. We then discuss some of the key economic factors, including two-sided and multi-sided network effects, which underpin both the platform value proposition and the ability to create welfare for users. Platform and technology firms have grown to the point where their market capitalizations greatly exceed oil, gas, and financial services firms. We then explore some key governance and regulatory issues, including privacy, false information, and antitrust. We conclude with a discussion of emerging issues posed by Large Language Models such as ChatGPT, including their ability to create false information at scale and disrupt creative industries.
... [48], who suggests that "what is undeniable, however, is that mergers have been allowed to proceed at an unprecedented pace, which has significantly contributed to a rise in concentration in the US", and [Preface] [41], who bemoans the adverse effects of an "increased permissiveness of antitrust policy (in merger control) over the past twenty-five years". [p.73] [52] in a recent symposium also points the finger at a "gradual weakening of merger control" and identifies "a need for stronger merger enforcement . . . with Superstar Firms" [p.75]. ...
This paper presents new evidence on two key developments in worldwide anti-trust in the last decade: (i) a downturn in the number of cartels detected by competition authorities and (ii) exponential growth in cases of monopolisation/abuse of dominance. Big Tech firms have been, undoubtedly, the main focus of the latter but almost totally absent in the former. These two developments offer perspectives on the description of Monopoly Capitalism as set out by Keith Cowling 40 years ago. Superficially at least, this seems to deny the prediction of ever-widening collusion, but, on the other hand, it resonates with the prediction of increasingly unassailable dominant firms. We suggest that the two trends can best be understood by the emergence of the Big Tech giants who have established dominance by exceeding tipping points in many markets. In turn, this leads to an alternative form of collusion—‘mutual forbearance’ in which firms back away from aggressive competition in the other giants’ areas of strength. Given this dominance, they do not need collusion—put simply, no sizeable rivals are remaining with whom they need to collude.
... 124 Cp.Baer et al., 2020; Commission "Competition Law 4.0," 2019;Furman et al., 2019; Stigler Center, 2019. 125 Cp.Baer et al., 2020;Shapiro, 2019. Note that the DMA does not foresee the creation of an independent antitrust agency at the European level, nor does it include sufficient financial (i.e., budget increase) and human resources (i.e., technical expertise and know-how, including data analysts, AI specialists, and independent researchers) (cp. ...
The past few years have seen the opening of several antitrust investigations against some of the most dominant and powerful companies in the world—e.g., the U.S. Department of Justice, numerous states, and the Federal Trade Commission have sued Google, Facebook, and Amazon, and the E.U. has launched additional proceedings against Amazon, Apple, Facebook, and Google. This paper looks at the latest trends and developments in the E.U. and the USA and analyzes the different regulatory approaches taken from a distinct business ethics, that is, ordoliberal perspective. The paper aims to derive ordoliberal-inspired antitrust principles and apply them to the current antitrust proceedings and investigations, thereby assessing their strengths and weaknesses. It also aims at developing ordoliberal-inspired reform proposals which might help to strengthen and “harden” modern-day antitrust regimes.
... 128 Cp. Baer et al., 2020;Shapiro, 2019. Note that the DMA does not foresee the creation of an independent antitrust agency at the European level, nor does it include sufficient financial (i.e., budget increase) and human resources (i.e., technical expertise and know-how, including data analysts, AI specialists, and independent researchers) (cp. . ...
人工智能的发展给创业活动带来了颠覆性的影响，同时也改变了创业者的行为和决策方式。在创业领域，尽管从2022年开始人工智能相关的研究呈现出井喷式发展，但目前有关人工智能对创业研究的影响依然缺乏系统的文献梳理和述评。基于此，本文首先对在权威期刊上发表的70篇人工智能和创业相关文献展开分析，从研究内容和方法两方面将既有人工智能对创业研究影响的相关文献分为了七类主题。然后通过对各个主题的文献进行分析，提炼出了研究现状和不足。最后，从七个方面总结了人工智能影响下创业领域有价值的研究议题。本文有助于推动人工智能和创业相关研究的进展，并为使用人工智能构建创业理论与研究范式提供有益参考。
The automotive sector is important across OECD countries in terms of
value-added and R&D, but is also heavily affected by the green and the
digital transformations. This paper offers a novel and holistic view of the
automotive sector and its surrounding ecosystem based on a combination
of Inter-Country Input-Output (ICIO) tables, patent data, mergers and
acquisitions (M&A) transactions, cross-country micro-distributed data and
firm-level balance sheet data. It identifies the boundaries of this industrial
ecosystem including connected sectors (e.g. upstream and downstream) as
well as knowledge and technology providers (e.g. universities or the digital
industry). The paper documents emerging trends at the geographical and
technological levels and provides a comprehensive assessment of the
ecosystem’s changing microstructure, with a growing role of young and
digital-intensive companies. Finally, it provides recommendations for
effective public policies to support the automotive ecosystem, with a focus
on innovation, competition and the growth of young firms.
The legal industry’s self-regulation creates entry barriers for firms and people who seek to provide legal services and for institutions that seek to educate lawyers. In this chapter, I provide a prospective assessment of whether deregulating the legal industry could benefit American society. I argue that deregulation would benefit consumers by allowing new entry of firms and individual lawyers who would reduce prices and increase the availability of legal services. I also argue that deregulation of legal education would result in lawyers being less intellectually siloed, which could provide enormous social benefits by exposing lawyers to other modes of intellectual thought that could help them improve their policy decisions and rulings when they serve in government as legislators and judges.
This article investigates the effects of labor market concentration on employment, job security, and wages. By constructing a flow-based index, I find that concentration is generally low across markets but varies across industries. Then, I use a Two-Stage Least Squares (TSLS) strategy based on the different exposures of industries to horizontal mergers. I find that mergers increase concentration, which in turn reduces wages by −0.14 and −0.07 and hires by −0.77 and −0.68%age points. I also find that (1) concentration does not affect the likelihood of a permanent hire but increases the probability that, when a temporary worker is renewed, the contract is again temporary; (2) men are affected by concentration only through wages, while women are less affected but also through job security; (3) estimates magnitude increases in concentration levels.
Bagaturia, Shota. 2020. Rebuilding American Economic Soft Power Through Antitrust Law.
Master's thesis, Harvard Extension School.
The growth of the large, “dominant” digital platforms – as well as increases in national concentration of U.S. industries and average profit margins, and a decline in labor’s share of national income – have prompted calls for a stronger antitrust policy. The Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) have recently responded with a more vigorous attack on mergers and have launched monopolization cases against Amazon, Apple, Facebook, and Google; two of these suits specifically seek divestitures as remedies. The early results of the more aggressive merger policy are not favorable, and the likelihood that court-ordered divestitures would be effective in increasing competition is low if the results of previous monopolization cases are a relevant guide. In addition, two pieces of legislation have been proposed in the U.S. Congress to curb the power of the large, dominant digital platforms. Neither of these proposals addresses the source of the platforms’ dominant positions; they would merely constrain the ability of these platforms to exploit their market positions. One of these bills, however, would require the largest platforms to interconnect with other businesses and, potentially, their rivals. This is a proposal that could result in all of the problems that a similar policy in telecommunications created two decades ago.
The 2023 Merger Guidelines make some notable improvements over the 2010 Horizontal Merger Guidelines. They give greater emphasis to the idea that predicting the competitive effects of a proposed merger is inherently difficult and that to block a merger the government need only show a risk that the merger may substantially lessen competition – not that it will do so. They also give greater emphasis to dynamic competition and innovation – especially with regard to acquisitions of potential entrants – and they add useful material on multi-sided platforms. However, the treatment of market definition in the 2023 Merger Guidelines may weaken horizontal merger enforcement by demoting the role of the “hypothetical monopolist test,” which is used to define markets for the purpose of measuring market shares, and by removing extensive material from prior guidelines that explained why market shares measured in narrower markets tend to be more informative than market shares measured in broader markets. The 2023 Merger Guidelines lower the market concentration thresholds that trigger a presumption by the antitrust enforcement agencies that a merger may substantially lessen competition, but the enforcement data suggest that change will have little effect in practice. The 2023 Merger Guidelines also may lead to less effective deterrence of harmful mergers because they are not well targeted at the mergers that are most likely to substantially lessen competition. One cannot prioritize everything.
In this research, the literature related to the financial economy of large companies in Iran and the factors affecting it are examined by studying and reviewing domestic and foreign articles. Therefore, the research method is a review. This article comprehensively examines the factors affecting the financial economy of large companies in Iran, the concepts related to financial economy.In this article, the studies and results of recent research in this field and the factors affecting the financial economy of large companies in Iran and the relationship between them have been analyzed and finally, a summary of the challenges and opportunities facing the implementation of financial economics in large Iranian companies. provides optimally and suggestions are provided to realize this goal. Factors affecting the financial economy of large companies can be widely varied and include more details that you can access by reading the article in its entirety.
In recent years, the literature has seen a surge of interest in pass‐through as an economic tool. At the same time, widespread concerns have emerged about the rising market power of firms. How does competition affect pass‐through? A standard intuition is that more competition makes prices more cost‐reflective and hence raises the rate of cost pass‐through. This article shows this conclusion is sensitive to the routine assumption that firms' marginal costs are constant. With modestly convex costs, market power can raise pass‐through (even when it lies below 1). These results have implications for antitrust policy, environmental regulation, and welfare analysis.
Separation of powers and antitrust deal with power and occupy centre stage in our challenging, digital times, but their interactions have not yet been analysed. This timely and ground-breaking book provides an innovative cross-disciplinary analysis of the potential convergence of these two fields. Notably, Vincent Martenet examines the concentration of politico-economic power in the hands of a few digital firms which have adopted private regulation, impacting an entire industry and society at large. He combines doctrinal method with historical developments, case studies, assessment of legislative proposals, and observations on the functioning of digital markets and democracy in the digital era. The book sketches important new axes of the separation of powers and suggests that antitrust may contribute, albeit in a limited way, to greater trust in both society and democracy: 'antitrust for trust', the ultimate apparent antitrust paradox.
Mergers between previously contending firms are a permanent challenge for policymaking as they potentially harm competition. The core incentive to merge is the prospect of higher joint profits of the previously independent firms after the merger. We discuss and compare the core assumptions of Horn and Wolinsky (1988) and von Ungern-Sternberg (1996) that lead to contrary results regarding the attractiveness of horizontal mergers of downstream firms in a 1:2 setting leading to a monopolized 1:1 setting. While the latter finds a merger beneficial for the downstream firms, it harms their joint profit, according to Horn & Wolinsky. We theoretically apply both models to the two settings. We also present extensive sample calculations that quantitatively confirm the two papers’ core insights. Discussing and contextualizing the results, we provide a comprehensive overview of horizontal mergers in the downstream part of vertical structures with bargaining over linear input prices. Due to continuing relevance of horizontal mergers for competition policy and, in particular, in light of the consolidation phase in tech start-ups, the topic is of enduring relevance in policymaking.
We examine how quality competition affects the relationship between market size and industry structure at the product level using evidence from the U.S. hotel industry. Starting in the early 1980s, quality competition for business travelers became more based on variable and less on fixed costs, and became less scale intensive. Since then, market size increases have been met by more, but smaller, hotels in business travel destinations but continued to be met by larger hotels in personal travel destinations. Our results illustrate how the way consumers benefit from increases in market size depends on how firms compete.
Dieser Beitrag thematisiert die ökonomische Macht von Unternehmen in Österreich und stellt die Frage, ob diese – wie in anderen OECD-Ländern – zugenommen hat. Konzeptuell wird eine neuartige Differenzierung zwischen ökonomischer und politischer Macht sowie zwischen Marktmacht im engeren Sinne und Macht infolge von Unternehmensgröße (Skalenmacht) zur Diskussion gestellt. Neuere empirische Studien zeigen, dass die ökonomische Macht nicht nur in den USA, sondern auch in Europa in den letzten Jahrzehnten zugenommen hat. Eine Analyse der OECD-Länderberichte für Österreich über den Zeitraum 1962–2021 zeigt, dass die von der OECD behauptete Zunahme des Wettbewerbs durch erstaunlich wenig empirische Evidenz untermauert wird.
There is widespread dissatisfaction with existing antitrust enforcement. The European Union has enacted comprehensive legislation to address perceived antitrust limitations, and several proposals to amend US antitrust laws have followed its lead. Most of the actual and proposed laws target firms that dominate the digital economy, while others have measures to tighten antitrust enforcement more generally. Market power has increased in the United States and most advanced economies, but it has not been uniformly associated with higher prices or lower productivity. Nonetheless, antitrust reforms can benefit consumers and address concerns about the concentration and exercise of economic power. In the United States, legislation would be desirable to amend rulings that are excessively deferential to antitrust defendants. However, most enacted and proposed reforms include prohibitions or obligations that depart from traditional antitrust principles and create potential risks for consumer welfare.
Expected final online publication date for the Annual Review of Economics, Volume 15 is August 2023. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
Financial sectorwages have increased extraordinarily over the last decades.We address two potential explanations for this increase: (1) rising demand for talent and (2) firms sharing rents with their employees. Matching administrative data of Swedish workers, which include unique measures of individual talent, with financial information on their employers, we find no evidence that talent in finance improved, neither on average nor at the top. The increase in relative finance wages is present across talent and education levels, which together can explain at most 20% of it. In contrast, rising financial sector profits that are shared with employees account for up to half of the relative wage increase. The limited labor supply response may partly be explained by the importance of early-career entry and social connections in finance. Our findings alleviate concerns about “brain drain” into finance but suggest that finance workers have captured rising rents over time.
What is the appropriate role of the state in economic policy-making? This paper shows that Friedrich Hayek, who is often considered a proponent of laissez-faire liberalism, offers three different answers to this problem. First, Hayek argues that the state should provide a legal framework for competitive markets. Second, he proposes to employ the rule of law criteria – generality, equality, and certainty – to distinguish permissible from non-permissible state interventions. Third, he downplays the importance of deliberate legislation and moves closer to the Misesian idea of a minimal state. The paper considers these answers in light of Hayek's analysis of the knowledge problem. We suggest that a Hayekian approach to economic policy-making should focus on improving the framework of general rules that guide individual behavior, thereby enabling spontaneous ordering processes and reducing the epistemological burden placed on policy-makers.
This chapter examines recent developments in economic research relating to antitrust, paying specific attention to research in the areas of collusion and merger enforcement. Research relating to both collusion and mergers has made significant advances in the last twenty years. With respect to collusion, this includes important theoretical and empirical work on the sustainability, structure, and impact of collusive schemes. With respect to mergers, this includes important work on the impact of enforcement institutions, both theoretical and empirical work on unilateral effects, and theoretical work on the selection of which mergers get proposed to antitrust agencies and optimal policy in the face of that selection. A feature of recent research is the increasing complementarity between empirical work (ranging from observational studies to model-based measurement) and theoretical work in advancing our understanding of collusive and merger-related phenomena.
This thesis contains three chapters and employs empirical and structural tools to study determinants of productivity growth and resource misallocation among firms in the economy. The first chapter studies the implications of financing constraints on optimal expansion strategies of multiple-product firms and their consequent effect on aggregate productivity level. In particular, this chapter seeks to understand how firms may prioritise expanding their domestic product scope over exporting when they have limited access to financing. To answer this question, I develop a firm dynamics model in which firms are heterogeneous in terms of their productivity and access to financing. Analytically, I find that a firm with sufficiently high levels of productivity but low access to financing overcomes its financing constraints by expanding in the domestic market with lower productivity goods and then exporting. I verify this result by structurally estimating an international trade model that matches the moments of the US economy in the early 2000s. I estimate that removing financing constraints would increase the aggregate productivity level by 3.1%. The second chapter provides an empirical investigation of the relationship between the enforcement of antitrust law and various macroeconomic outcomes such as productivity growth, firm entry rate, and investment in Research and Development for two cases: the US and Europe. For the US, I proxy antitrust enforcement by the relative share of antitrust budget, and combine it with firm-level and sector-level data. Similarly, for Europe, I use firm-level and sector-level data together with an antitrust index capturing variation of law across countries and over time. Through both exercises, I find that in more concentrated industries stronger antitrust policies are associated with higher productivity growth, higher entry rate but lower investment in Research and Development. This chapter serves as a motivation to the results in chapter 3. The third chapter develops a structural model to study firms’ strategic and anticompetitive actions, and the consequent role of antitrust law as a macroeconomic policy in generating higher productivity growth. In this chapter, I propose a dynamic general equilibrium model with innovation and oligopolistic product market competition. The oligopolistic competition provides firms with market power, which combined with a dynamic setup, implies that firms may find it optimal to eliminate their competitors through strategic decision making. I then structurally estimate the model to match the recent US experience. Through a quantitative exercise, I find that strengthening antitrust policies improves business dynamism on various fronts: (1) firm entry rate increases, (2) productivity growth improves, (3) labour share of GDP becomes higher, (4) while innovation proxied by the relative share of R&D expenditure falls. The model shows that stronger antitrust policies can improve welfare by up to 16% in consumption equivalent terms.
Antitrust policy in the United States has recently gained an unusual amount of political and media attention—including with regard to the application of antitrust to the agricultural sector. There are critics who have argued that a major overhaul of antitrust policy is needed. This paper argues that instead there are some important but more modest changes that could go a long way toward significantly strengthening the role that antitrust can play in keeping the US economy competitive, vibrant, and innovative.
This paper focusses on the interaction between technology, the business environment, regulation, and society in ICT industries. The role of technological advances in communication (e.g., cellular mobile, 5G, spectrum allocation) and in computational advances (e.g., cloud, Internet of Things, artificial intelligence) along with developments in the business environment (e.g., disruption, convergence, Industry 4.0) and the regulatory environment (e.g., competition law and market regulation) in the model is explained. The economics of network industries and competition law and strategies such as vertical integration, bundling, and tying are described. The role of regulation and innovation is discussed along with some cases.
The 1968 Merger Guidelines of the U.S. Department of Justice remain a model for competition agencies around the world because they courageously articulated when the Department would exercise its prosecutorial discretion by not challenging a horizontal merger.
The recent fall of labor's share of GDP in numerous countries is well-documented, but its causes are poorly understood. We sketch a "superstar firm" model where industries are increasingly characterized by "winner take most" competition, leading a small number of highly profitable (and low labor share) firms to command growing market share. Building on Autor et al. (2017), we evaluate and confirm two core claims of the superstar firm hypothesis: the concentration of sales among firms within industries has risen across much of the private sector; and industries with larger increases in concentration exhibit a larger decline in labor's share.
In this paper we propose a method to evaluate the effectiveness of U.S. horizontal merger policy and apply it to the study of five recently consummated consumer products mergers. We select the mergers from those that, from the public record, seem most likely to be problematic. Thus, we estimate an upper bound on the likely price effect of completed mergers. Our study employs retail scanner data and uses familiar panel data program evaluation procedures to measure price changes. Our results indicate that four of the five mergers resulted in some increases in consumer prices, while the fifth merger had little effect.
Prospective merger review is the most frequent application of antitrust law. It exempts transactions on the basis of size, though small deals can have large anticompetitive effects in segmented industries. I examine its impact on antitrust enforcement and merger activity in the context of an abrupt increase in the US exemption threshold. I find that among newly-exempt deals, antitrust investigations fall to almost zero while mergers between competitors rise sharply. Effectively all of the rise reflects an endogenous response of firms to reduced premerger scrutiny, consistent with large deterrent effects of antitrust enforcement. (JEL G34, G38, K21, L41)
The question of whether and how partial common-ownership links between strategically interacting firms affect firm objectives and behavior has been the subject of theoretical inquiry for decades. Since then, the growth of intermediated asset management and consolidation in the asset management sector has led to more pronounced common-ownership links at the beneficial-owner level. Recent empirical research has provided evidence consistent with the literature’s prediction that common-ownership concentration (CoOCo) can affect product market outcomes. The resulting antitrust concerns have received worldwide attention. However, because CoOCo can change the objective function of a firm, the potential implications span all fields of economics that involve corporate conduct, including corporate governance, strategy, industrial organization, and financial economics. This article connects the papers establishing the theoretical foundations, reviews the empirical and legal literatures, and discusses challenges and opportunities for future research. Expected final online publication date for the Annual Review of Financial Economics Volume 10 is November 1, 2018. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.
This Feature examines the antitrust treatment of mergers that harm sellers. We separately consider two mechanisms of harm, increased classical monopsony power and increased bargaining leverage. We show that lost upstream competition is an actionable harm to the competitive process. Our central claim is that harm to sellers in an input market is sufficient to support antitrust liability. We defend this conclusion against the contrary view that demonstrated harm to the merging firms’ downstream purchasers or final consumers is an essential element of any antitrust claim. Nor is it necessary for plaintiffs to demonstrate a reduction in the input quantity transacted. We further argue that claimed “efficiencies” premised on a reduction in buy-side competition are not efficiencies at all.
This Feature offers a roadmap for bringing and deciding predatory pricing cases under the Supreme Court’s restrictive Brooke Group decision. Brooke Group requires a plaintiff to show that the defendant set a price below cost and had a sufficient likelihood of recouping its investment in predation. This framework, which was adopted without any contested presentation of its merits, has endured despite its flaws. Beyond this framework, the Court opined in dicta that predation is implausible. We identify points of flexibility within the Court’s framework that permit an empirically grounded evaluation of the predation claim. Under the price-cost test, a plaintiff has leeway to select an appropriate measure of cost, including incremental cost. In considering recoupment, Brooke Group’s skeptical dicta should be confined to the particular market structure and theory of recoupment analyzed in that case. The dicta do not apply, for example, to a monopolist who recoups by earning a reputation for predation. A further reason to confine Brooke Group’s dicta is the Court’s highly unusual reweighing of the evidence presented at trial. As we explain using new historical research, this was not the Court’s initial plan after oral argument, but Justice Kennedy switched his vote. We also make the case against extending the price-cost test to more complex pricing strategies, such as loyalty discounts, in which the motivation for a stringent rule—to avoid costly false positives—has little purchase.
Many natural competitors are jointly held by a small set of large institutional investors. In the U.S. airline industry, taking common ownership into account implies increases in market concentration that are 10 times larger than what is “presumed likely to enhance market power” by antitrust authorities. Within‐route changes in common ownership concentration robustly correlate with route‐level changes in ticket prices, even when we only use variation in ownership due to the combination of two large asset managers. We conclude that a hidden social cost – reduced product market competition – accompanies the private benefits of diversification and good governance.
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This article discusses how to move antitrust enforcement forward in a constructive manner during a time of widespread and growing concern over the political and economic power of large corporations in the United States. Three themes are emphasized. First, a body of economic evidence supports more vigorous merger enforcement in the United States. Tighter merger control can be achieved by utilizing the existing legal presumption against highly concentrating mergers. Second, close antitrust scrutiny is appropriate for today's largest and most powerful firms, including those in the tech sector. Proper antitrust enforcement regarding unilateral conduct by dominant firms should continue to focus on identifying specific conduct that harms customers or disrupts the competitive process. Third, while antitrust enforcement has a vital role to play in keeping markets competitive, antitrust law and antitrust institutions are ill suited to directly address concerns associated with the political power of large corporations or other public policy goals such as income inequality or job creation.
The fall of labor's share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain. Existing empirical assessments of trends in labor's share typically have relied on industry or macro data, obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and international sources and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of \superstar firms." If globalization or technological changes advantage the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms with high profits and a low share of labor in firm valueadded and sales. As the importance of superstar firms increases, the aggregate labor share will tend tofall. Our hypothesis offers several testable predictions: industry sales will increasingly concentrate in a small number of firms; industries where concentration rises most will have the largest declines in the labor share; the fall in the labor share will be driven largely by between-firm reallocation rather than (primarily) a fall in the unweighted mean labor share within firms; the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; and finally, such patterns will be observed not only in U.S. firms, but also internationally. We find support for all of these predictions.
We synthesize two related literatures on firm-level drivers of wage inequality. Studies of rent sharing that use matched worker-firm data find elasticities of wages with respect to value added per worker in the range of 0.05–0.15. Studies of wage determination with worker and firm fixed effects typically find that firm-specific premiums explain 20% of overall wage variation. To interpret these findings, we develop a model of wage setting in which workers have idiosyncratic tastes for different workplaces. Simple versions of this model can rationalize standard fixed effects specifications and also match the typical rent-sharing elasticities in the literature.
A large literature documents declining measures of business dynamism including high-growth young firm activity and job reallocation. A distinct literature describes a slowdown in the pace of aggregate labor productivity growth. We relate these patterns by studying changes in productivity growth from the late 1990s to the mid 2000s using firm-level data. We find that diminished allocative efficiency gains can account for the productivity slowdown in a manner that interacts with the within-firm productivity growth distribution. The evidence suggests that the decline in dynamism is reason for concern and sheds light on debates about the causes of slowing productivity growth.
A growing body of evidence indicates that the U.S. economy has become less dynamic in recent years. This trend is evident in declining rates of gross job and worker flows as well as declining rates of entrepreneurship and young firm activity, and the trend is pervasive across industries, regions, and firm size classes. We describe the evidence on these changes in the U.S. economy by reviewing existing research. We then describe new empirical facts about the relationship between establishment-level productivity and employment growth, framing our results in terms of canonical models of firm dynamics and suggesting empirically testable potential explanations.
In The Antitrust Paradox, Robert Bork viewed most mergers as either competitively neutral or efficiency enhancing. In his view, only mergers creating a dominant firm or monopoly were likely to harm consumers. Bork was especially skeptical of oligopoly concerns resulting from mergers. In this paper, we provide a critique of Bork’s views on merger policy from The Antitrust Paradox. Many of Bork’s recommendations have been implemented over time and have improved merger analysis. Bork’s proposed horizontal merger policy, however, was too permissive. In particular, the empirical record shows that mergers in oligopolistic markets can raise consumer prices.
We estimate the impact of cartel organizational features, as well as macroeconomic fluctuations and industry structure, on cartel duration using a data set of contemporary international cartels. We estimate a proportional hazards model with competing risks, distinguishing factors that increase the risk of “death by antitrust” from those that affect natural death, including defection, dissension, and entry. Our analysis indicates that the probability of cartel death from any cause increased significantly after 1995, when competition authorities expanded enforcement efforts toward international cartels. We find that fluctuations in firm-specific discount rates have a significant effect on cartel duration, whereas market interest rates do not. Cartels with a compensation scheme—a plan for how the cartel will handle variations in demand—are significantly less likely to break up. In contrast, retaliatory punishments in response to perceived cheating significantly increase the likelihood of natural death. Cartels that have to punish are not stable cartels.
It is increasingly recognized that labour markets are pervasively imperfectly competitive, that there are rents to the employment relationship for both worker and employer. This chapter considers why it is sensible to think of labour markets as imperfectly competitive, reviews estimates on the size of rents, theories of and evidence on the distribution of rents between worker and employer, and the areas of labour economics where a perspective derived from imperfect competition makes a substantial difference to thought.
An examination of data on output and labor input reveals that some U.S. industries have marginal cost well below price. The conclusion rests on the finding that cyclical variations in labor input are small compared with variations in output. In booms, firms produce substantially more output and sell it for a price that exceeds the costs of the added inputs. This paper documents the disparity between price and marginal cost, where marginal cost is estimated from annual variations in cost. It considers a variety of explanations of the findings that are consistent with competition, but none is found to be completely plausible. Copyright 1988 by University of Chicago Press.
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