Realist, not conformist analysis of the latest financial, business and political news

The Idea Of Rising Market Concentration Is Quite Literally Insane

Marginal Revolution tells us of a new paper looking at the possible rise in market concentration in the US economy:

This paper uses new data to reexamine trends in concentration in U.S. markets from 1994 to 2019. The paper’s main contribution is to construct concentration measures that reflect narrowly defined consumption-based product markets, as would be defined in an antitrust setting, while accounting for cross-brand ownership, and to do so over a broad range of consumer goods and services. Our findings differ substantially from well established results using production data. We find that 42.2% of the industries in our sample are “highly concentrated” as defined by the U.S. Horizontal Merger Guidelines, which is much higher than previous results. Also in contrast with the previous literature, we find that product market concentration has been decreasing since 1994. This finding holds at the national level and also when product markets are defined locally in 29 state groups. We find increasing concentration once markets are aggregated to a broader sector level. We argue that these two diverging trends are best explained by a simple theoretical model based on Melitz and Ottaviano (2008), in which the costs of a firm supplying adjacent geographic or product markets falls over time, and efficient firms enter each others’ home product markets.

The problem is that people are still measuring markets by geography.

Sure, labour monopsony, the company town, you didn’t get the job at the mill you were screwed. There’s one guy in town who sells hats and if you want a hat you’ve got to deal with him.

So, what’s the defining retail feature of our current world? Online shopping, Amazon. Which puts 100,000 shops inside each and every front room in the country. Geography simply isn’t a useful attribute of any goods market and an awful lot of services ones too.

The very idea of measuring market concentration by geogrpahy is just wrong these days.

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John B
John B
1 month ago

It would be so nice if people stopped measuring things, and got jobs producing wealth. Then the rest of us could just get on with the rest of our lives unmolested.

Tweedle Dee
Tweedle Dee
1 month ago

John B, you sound like a fan of John James Cowperthwaite.

Spike
Spike
1 month ago
Reply to  Tweedle Dee

Who, according to Wikipedia, “refused to compile GDP statistics arguing that such data was not useful to managing an economy and would lead to officials meddling in the economy.”

Indeed, amid Biden “existential crises” from money inequality to “systemic” racism, collective measurement is only used as a wedge for collective (coercive) solutions. They might govern more cautiously if they were blinded.

Spike
Spike
1 month ago

It sounds as though the researchers tweaked their process until they got confirmation of their preconceived notion that they were seeking (which, if they never did, they would not have published). Even if their methodology is rigorous, their science is suspect.

PS—The study ends a year before gov’t undertook to tell “essential” business from “non-essential,” a process that led to a lot of concentration.

Craig
Craig
1 month ago

People routinely think that Walmart and Amazon are very, very cheap, but actually this isn’t entirely correct. They are efficient for what they are of course, but for the most part, for every dollar sold, both organizations spend an inordinate amount of that dollar on operating expenses. I happen to run a ‘basement business’ and have no operating expenses beyond the expenses I would already be paying just to live here. This was different in the past, a past back in NJ, but now in FL I have a pimple on Bezos’ behind. Of course the problem here is that… Read more »

Craig
Craig
1 month ago
Reply to  Craig

And yes, they absolutely do this: “Hi Craig,
Please remove all of our items from your website until you can bring them up to compliance. You have incorrect pricing”

That’s because Amazon sees it and tells them…..

Spike
Spike
1 month ago
Reply to  Craig

I’m sorry to hear that Amazon, which you piggyback on top of, doesn’t grant you the terms you prefer, such as the power to compete with them head-to-head. One thing Amazon gives me, for all that overhead you don’t have, is a way to FIND OUT their merch. and prices (and yours). My neighbor might have sold me that used TV for less than I paid for a new one. But I have no way of knowing.

Craig
Craig
1 month ago
Reply to  Spike

I don’t sell on Amazon as a third party seller. I’m in no contractual relationship with them at all. Amazon prevents me from giving you better terms. If you go to google and type ‘widget’ and you go to my ad, the only reason you’d buy from me is because I personalize and gift wrap the items and Amazon, at least in the niche I am selling in, doesn’t. Its the same price, and if that is not something you want (many people actually ask me to personalize an item they bought on Amazon) to wait for, and odds are… Read more »

Spike
Spike
1 month ago
Reply to  Craig

So it must be your supplier that is in a contract with Amazon. I presume you knew that going in. You could find another supplier, but at a lower volume they presumably couldn’t supply you for the same low price. At any rate, you have found a niche under this contract, bundling in services such as gift-wrapping.

Craig
Craig
1 month ago
Reply to  Spike

Amazon is the Johnny-Come-Lately here! I’ve been doing this since the 90s. I moved to FL so the business morphed, but I manufactured leather jackets in NJ a business which had an incidental storefront which sold various things. I sold that business but I retained the websites and in FL I can still sell from those very same websites.

Michael van der Riet
Michael van der Riet
1 month ago
Reply to  Craig

A friend working on an exploration drilling rig out in the middle of nowhere in Mali wanted a Nespresso machine. He ordered from Amazon and hey presto four days later it was there. Incidentally he could have ordered from any one of numerous cyber retailers, which could be based in Tannu Tuva for all the difference it would make.

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