Saturday, April 7, 2018

DON'T PANIC: a guide to claims of increasing concentration

New paper by some middling economists:
The Obama Administration’s Council of Economic Advisers (CEA) sounded an alarm in 2016 with an “issue brief” pointing to indications of “a decline of competition.” Principal among them was “increasing industry concentration,” and the key evidence was data from the U.S. Census Bureau. Commentators relied on these data in advocating antitrust reform. But these data do not demonstrate increasing concentration of markets, i.e., ranges of economic activity in which competitive processes determine price and quality, and in which the impact of mergers and trade restraints are evaluated in antitrust law.  
Market concentration is a useful indicator of competition, but Census data relate to aggregations of economic activity much broader than markets. We show that even the least aggregated Census data can be over a hundred times too aggregated, yet the CEA used the most aggregated Census data. It principally cited the change in the 50-firm concentration ratio for 13 broad sectors of the U.S. economy, such as retail trade. We agree with Carl Shapiro, a member of the CEA during the Obama Administration (2011– 12), that these data are “not informative regarding the state of competition.”

These claims have spread rapidly into policy debates without careful review of the claims or the underlying data on which they are based.

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