Are US Industries Becoming More Concentrated?*

By Gustavo Grullon, Yelena Larkin, Roni Michaely. Review of Finance, 2019

438 citations recorded by the source corpus.

Since the late 1990s, over 75% of US industries have experienced an increase in concentration levels. We find that firms in industries with the largest increases in product market concentration show higher profit margins and more profitable mergers and acquisitions deals. At the same time, we find no evidence for a significant increase in operational efficiency. Taken together, our results suggest that market power is becoming an important source of value. These findings are robust to the inclusion of (i) private firms; (ii) factors accounting for foreign competition; and (iii) the use of alternative measures of concentration. We also show that the higher profit margins associated with an increase in concentration are reflected in higher returns to shareholders. Overall, our results suggest that the US product markets have undergone a shift that has potentially weakened competition across the majority of industries.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/22e1e3f32040c3005405671e88fc737b2a12e3a8

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Citations in the corpus

From Good to Bad Concentration? US Industries over the Past 30 Years (2019, background): “Moving to bad concentration, Grullon et al. (2019) show that firms in concentrating industries exhibit higher profits, positive abnormal stock returns and more profitable M&A deals.”
Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory (2019, neutral): “The level of markups has been on the rise in the United States, as illustrated in Figure 2 (see Nekarda and Ramey 2013; De Loecker and Eeckhout 2017; Gutiérrez and Philippon 2017; Eggertsson, Robbins, and Wold 2018; Hall 2018, among 3 See Council of Economic Advisors (2016) and OECD (2018a) for a…”
Industry Concentration in Europe and North America (2019, background): “For example, at an aggregate-level, Valletti et al. (2017) find that profits are rising as a share of GDP across the EU5 since the mid-1990s, and this growth has been in line with the United States.”
What Happened to US Business Dynamism? (2019, background): “…market concentration in the United States (fact 1; see Furman and Giuliano 2016; Gutiérrez and Philippon 2016, 2017; Autor et al. 2017a, 2017b; Grullon, Larkin, and Michaely 2019; and Barkai 2020, among others).3 Second, several recent studies show an increase in average markups (fact 2; see…”
Increasing differences between firms: market power and the macro-economy (2018, background): “Grullon et al. (2017) claim that there was a significant decline in antitrust enforcement during the administrations of George W. Bush and Barack Obama (e.g., Harty, Shelanski and Solomon 2012, Crane 2012).”
Declining Labor and Capital Shares (2020, background): “Grullon, Larkin, and Michaely (2019) show that the large increase in industry concentration has been driven by the consolidation of publicly traded firms into larger entities and that firms in industries with the largest increases in product market concentration have enjoyed higher profit margins,…”