In this installment of ProMarket’s new interview series on concentration in America, Chicago Booth professor Dennis Carlton strikes a skeptical note concerning claims that increased concentration has negatively impacted the U.S. economy. “Every industry with very high concentration deserves scrutiny from an antitrust viewpoint.” 

Does America have a concentration problem? This week (March 27-29), the Stigler Center is hosting a first-of-its-kind, three-day conference in Chicago that focuses on this very question.

The conference brings together dozens of top academics from law, economics, history, and political science, along with policymakers, journalists, and public intellectuals.

Ahead of this conference, we decided to present influential scholars and intellectuals with some questions on concentration, market power, and bigness—and their potential effects on the U.S. economy. You can find previous installments here.

Dennis W. Carlton
Dennis W. Carlton

Dennis W. Carlton is the David McDaniel Keller Professor of Economics at the Booth School of Business at the University of Chicago, where he teaches at the Business School, Law School, and Economics Department. His teaching and research centers on microeconomics, industrial organization, and antitrust. He has published more than 100 articles and two books, including one of the leading textbooks in industrial organization.

From 2006 to 2008, Carlton served as the Deputy Assistant Attorney General for Economic Analysis at the U.S. Department of Justice. Carlton has served as an advisor on antitrust matters to the Department of Justice, the Federal Trade Commission, and to private clients. He has served as the sole economist on the Antitrust Modernization Commission, a congressional committee investigating the antitrust laws that published its findings in 2007. Recently, he served as a member of the American Bar Association Presidential Transition Task Force (Antitrust law, 2016). 

In a brief interview with ProMarket, Carlton shared his thoughts on concentration and the U.S. economy.

Q: The discourse on concentration, market power, and bigness in many U.S. industries has increased dramatically in the last year. Do you believe that we have enough empirical evidence to show that concentration is on the rise and having adverse effects on the economy?

There is some evidence of increased concentration. But the evidence I have seen in manufacturing (I thank Sam Peltzman for his data) suggests that these increases are unlikely to have large effects on the U.S. economy. For example, using census data, with all its limitations such as ignoring imports, the evidence indicates that the U.S. economy is still generally characterized by manufacturing industries with low concentration levels.

I am skeptical of claims and have seen no convincing evidence that increased concentration overall across all industries has been a major factor in explaining poor U.S. economic performance.

Q: In your opinion, what are the main reasons for the rise in concentration?

Technology explains the rise in concentration in some industries. Regulation, which tends to burden small firms disproportionately, explains it in others.

Q: Which industries should we be concerned with when we look at questions of concentration? Do we have evidence of excessive market power, reduction in quality or investment, or growing political influence?

Every industry with very high concentration deserves scrutiny from an antitrust viewpoint. Industries where data collection is important might raise privacy issues that need to be addressed, in addition to antitrust issues.

Q: Has consolidation in the financial industry played a role in concentration or antitrust issues in the U.S.?

Concentration in the financial industry can raise antitrust concerns. The recent ABA advisory report on antitrust for the next administration raises this issue and suggests that the Federal Reserve should not adopt different merger standards than the Department of Justice.

But if the question is suggesting that bank concentration is responsible for increased concentration in other industries, I have seen no evidence of that.

Q: The five largest internet and tech companies—Apple, Google, Amazon, Facebook, and Microsoft—have outstanding market share in their markets. Are current antitrust policies and theories able to deal with the potential problems that arise from the dominant positions of these companies and the vast data they collect on users?

The report of the Antitrust Modernization Commission explicitly addressed the question of the adequacy of antitrust laws in light of new technologies in great detail, and the bipartisan panel concluded that the current antitrust laws were indeed adequate. However, special concerns regarding privacy protection can arise.

Q: Is there a connection between the growing inequality in the U.S. and concentration, dominant firms, and winner-take-all markets?

Technology influences market structure. Technology is the major factor explaining earnings inequality. But it would be misleading to say that an exogenous increase in concentration is the significant cause of increased earning inequality. The changing role of jobs because of technological change is the major reason for increased inequality.

Q: President Trump has signaled before and after the election that he may block mergers and go after certain dominant companies. What kind of antitrust policies should we expect from him? Pro-business, pro-competition, or political antitrust?

See my short essay from the Antitrust Source (Feb 2017):

Hopes for Antitrust Policy Under the Trump Administration

Over at least the last ten years, complaints that antitrust policy is too lax have grown steadily in volume. Some critics have even suggested that the U.S. economy has become less competitive as a result, which they argue has led to slowing economic growth and increasing income inequality. I hope that the Trump administration’s response to such claims will be to ask for the evidence that supports these views before altering antitrust enforcement. This does not mean that the complaints should be ignored. To the contrary, it means that the Trump administration should alter antitrust policy to address concerns only when those concerns are based on evidence—not rhetoric—and only when those concerns can be appropriately addressed by antitrust policy.

In the wake of these criticisms of antitrust policy, President Obama called not only for the government antitrust agencies to pursue vigorous antitrust enforcement but also for regulators to intervene in the industries they regulate to make them more competitive. I hope that the Trump administration will ask for specific evidence that any proposed regulatory intervention would likely improve competitive conditions in particular industries. The experience of regulation shows that often (though not always) regulatory intervention harms rather than helps competitiveness and economic performance, sometimes by making it more difficult for new firms to enter an industry.

Some have called for antitrust policymakers to take into account the effects of antitrust policy on income inequality and unemployment. My hope is that the Trump administration will use antitrust policy only for what antitrust does best—protection of the competitive process. Goals such as reducing poverty or decreasing unemployment are important but antitrust policy is ill-suited to achieve those goals. Over time, competition raises living standards by allocating resources to new, higher valued uses. Attaching other goals to antitrust enforcement can interfere with that process.

There are many antitrust topics that the Trump administration can usefully address. It can encourage the use of retrospective studies to evaluate past mergers as well as the techniques used to evaluate those mergers. Did past mergers systematically raise prices and do our techniques identify such cases or not? Noting that price goes up in some mergers is not a sufficient analysis unless one also takes into account that prices go down in other mergers. The issue is whether we see a systematic bias in what our government agencies are doing. A small sampling of other important topics would include guidance on the antitrust analysis of two-sided markets, bundled discounts, and tie-in cases. Finally, the FTC should think hard about its consumer protection mission, especially with regard to privacy

(Source: The Antitrust Source, February 2017)