The distribution of corporate profits going to a few superstar companies has surged in the US. In Europe, however, the story is quite different. Beginning in the 1990s, EU markets have become friendlier to competition than the US, according to New York University PhD candidate Germán Gutiérrez and NYU’s Thomas Philippon.
Studying a number of industries that have become increasingly concentrated in the US, Gutiérrez and Philippon find that the evolution of these same industries across Europe was toward stable or lower concentration. This has been true even though EU companies used similar technologies and faced the same foreign competition.
Take the airline industry, for example. In Europe, concentration and profits remained stable or declined starting in the 1990s. But in the US, airlines became substantially more concentrated, and profits soared. The developments in the US industry aligned with a controversial series of mergers, including Delta-Northwest, United-Continental, Southwest-AirTran, and American-US Airways, Gutiérrez and Philippon write. Antitrust enforcement, at the center of the progressive movement in the US a century ago, has been on the decline since the late 1970s, the research suggests.
The disparity reflects differences between the EU and US in how much companies spend on lobbying of regulators and politicians, the researchers argue. Using US data from the federal Lobbying Disclosure Act database and European data from the EU Transparency Register, they find that from 2013 to 2016, lobbying outlays were more than twice as high in the US as in Europe. In 2016, industry lobbying in just 20 US states totaled $1.4 billion—almost matching all EU lobbying expenditures that year.
The amount spent on lobbying political candidates was also far greater in the US, Gutiérrez and Philippon write. From 2005 to 2014, campaign contributions adjusted for GDP were four to 20 times as high in the US as in Europe, they find.
The findings highlight a significant reversal of US antitrust history. In the first two decades of the 20th century, the US Congress sought to prevent the concentration of power in industry, setting the tone for robust antitrust policies. But more recently, antitrust activity has waned as corporate spending has influenced the government. For example, from 1996 to 2008, the study finds, the Federal Trade Commission, tasked with protecting US consumers, essentially stopped investigating mergers when there were five or more competitors in an industry. Litigation over abuse of market dominance has decreased. The Department of Justice has brought just one such case since 2000, United States v. Microsoft Corporation 253 F.3d 34 (DC Cir. 2001).
There’s evidence the resulting concentration is detrimental to consumers. In the telecommunications industry, market power has surged to the point that average monthly broadband prices are nearly twice as high in the US as in other advanced economies: $66, compared with $35 in Germany and $38 in France, according to data cited in the research.
Meanwhile EU institutions are “fiercely independent,” says Philippon. Market-dominance cases have increased in the EU since the 1970s. The same pattern holds true for cartel investigations, where EU collections of monetary damages have risen in connection with increased enforcement efforts, while US collections have fallen (although prison sentences rose).
The researchers draw a link between fat US corporate profits and the ability of corporations to influence policy makers through lobbying, resulting in rising costs for consumers. But across the Atlantic, European markets have become more competitive than ever before, as the low concentration of corporate power allows new companies the chance to compete.