Wednesday, May 28, 2014

Industry Concentration In The US Is On The Rise

One of the axioms in economics is that competition is the force which causes firms to provide value to its customers.  Of course, competition is not good for profits and it constrains firm growth.  This article describes the growth in industry concentration in the US.  It is especially high in the technology industries for several reasons.  They tend to purchase start ups that might become rivals and they are protected by intellectual property rights.  The result is less value for consumers and a constraint on innovation.   Most industries in the US are oligopolistic.  A small number of firms provide most of the output, and that has been true for many years.  As the economy becomes more centered around technology, however, the degree of industry concentration has increased.  Moreover, other industries, such as healthcare services, are becoming more concentrated.  Hospitals are merging, and they are buying up medical practices that had been run by physicians. 

Governments, of course can restrain the growth in industry concentration.  It would appear, however, that this has not been a priority.  AT&T is attempting to acquire Direct TV, Comcast has acquired Time Warner, and their competitors are looking for acquisitions.  Perhaps there is a relationship between the increase in concentration and the value that US consumers get from their Internet providers.  Consumers in the US pay higher prices per unit of bandwidth than consumers in many other countries.  We deregulated the telecommunication industry in order to encourage more competition.  We now have a less regulated industry and increasing levels of concentration.

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