Both Republican and Democratic politicians have been sounding alarms about market power in the United States, arguing that a few companies such as Amazon, Facebook, and Google have become too dominant. In July 2021, the White House issued an executive order and statement doubling down on antitrust law enforcement, with a promise to reign in “corporate consolidation” and “bad mergers” in the interest of US consumers.
A growing body of research supports this notion, pointing to a regulatory leniency over the past few decades that is driving concentration across US markets and segments. Stanford’s C. Lanier Benkard and Ali Yurukoglu and Chicago Booth’s Anthony Zhang provide more support for this claim—in part. The researchers find abundant evidence of rising concentration at the broader market level, with more mergers, fewer players, and a rise in organizations with high market share.
But they find a different picture at the level of individual products, where more concentration has led to more competition.
Monopolies are generally considered to be bad for consumers and the economy. When markets are dominated by a small number of big players, there’s a danger that these players can abuse their power to increase prices to customers. This kind of excessive market power can also lead to less innovation, losses in quality, and higher inflation.
Thus, US legislators have historically sought to limit the market power of large corporations. Three major antitrust laws have been passed by Congress over the past century, all aimed at prohibiting price-fixing, preventing monopolies, and driving free competition as the rule of trade.
But the discussion about concentration has traditionally centered on the number of companies operating and competing in different segments, with less attention paid to the situation at the individual product level. When there are fewer players producing goods and services, does it follow that there are fewer goods and services to choose from—and therefore less choice for consumers in terms of prices?
The researchers analyzed newly available data from MRI-Simmons, a provider of attitudinal and behavioral US consumer insights, to reexamine and reassess trends in concentration in US product markets between 1994 and 2019. Indeed, they see divergent patterns emerge when it comes to companies and products.
In the area of household goods, for instance, corporate concentration has increased. Proctor & Gamble and Phoenix Brands, among other larger companies, have systematically acquired the makers of brands such as Tide, Cheer, Ajax, and Fab in the detergents category.
And yet, at the level of individual product markets in detergents, as well as in personal hygiene products, shampoos, and toothpastes, concentration has declined and competition has increased, the researchers find. Over time, P&G’s and Phoenix’s conglomerated companies have not only continued to manufacture existing products, but they’ve also ramped up efforts to produce new brands.
Similar patterns can be seen in other markets including food and financial services, according to the study. Companies such as Nestlé, Kraft Heinz, and Visa dominate at the corporate level, but concentration has been dropping at the individual product level.
In total, the researchers looked at 337 consumer product markets using the Herfindahl-Hirschman Index—a standard measure of the size of companies relative to the industry they operate in—to assess concentration at the market and product levels over time. It’s important, they note, that the study is limited to consumer markets and doesn’t look at markets for labor or intermediate goods (components used to manufacture final products).
Industries with HHIs between 1,500 and 2,500 are considered moderately concentrated, with anything above 2,500 being highly concentrated.
“When you look at the distribution of HHIs at the local product level in consumer goods, concentration has fallen over time,” says Zhang. “The median HHI fell from 2,256 in 1994 to 1,945 in 2019, so there has actually been a substantial improvement in competition in these individual product markets over time.”
The researchers hypothesize that this effect could be driven by economies of scale and greater efficiencies in processes and operations as large companies consolidate their presence and integrate expertise and know-how from the smaller firms they acquire. Superior access to research and development and emerging technologies may also have a role to play in streamlining production and manufacturing—a benefit that seems to be making its way across conglomerates and their roster of owned brands and into the pockets of US consumers.
This has implications for US legislators concerned about rising concentration. To date, the understanding of the full dynamics at play within the US antitrust context has been incomplete, the researchers argue. “There is some subtlety required to understand the big picture and to see things through the lens of consumers, who are enjoying greater choice and more competitive product pricing from American manufacturers today than they were 20 years ago in certain markets,” says Zhang.