The end of competition?

Posted by The Washington Post

The end of competition?

By Robert J. Samuelson

Competition is dying. That’s the latest complaint against American business. We have too many supersized firms, excessively large and unnaturally profitable. Dubious mergers, permitted by toothless antitrust laws, boost companies’ market power and squash rivals. The lifeblood of a dynamic economy is competition; its erosion — if true — would be a momentous event.

But is it true? Let’s see.

Superficially, there’s ample corroborating evidence. Facebook, Google, Microsoft, Apple and some other tech firms are massive and have dominant market positions in their chosen fields. Google — to take one obvious example — has about 90 percent of the Internet search market.

Mergers and acquisitions among large firms are also common, with antitrust laws providing only limited restraint. Just recently, the Justice Department (which shares antitrust enforcement with the Federal Trade Commission) approved the $69 billion health-industry merger between CVS and Aetna. Earlier, Justice challenged the $85 billion merger between Time Warner and AT&T, but a federal court backed the companies.

A number of studies indicate that economic consolidation — fewer firms providing goods and services — is occurring in many industries. The best-known report came in 2016 from President Barack Obama’s Council of Economic Advisers (CEA). It found that all U.S. corporate mergers and acquisitions totaled about $2.5 trillion in 2015, “the highest amount in a year on record.” At the same time, rates of business start-ups have dropped by almost 50 percent from 1977 to 2012, the CEA noted.

So, it seems, the economy is increasingly ruled by older and more mature firms. Just what has caused this is an unsettled question, but some entrepreneurs may be deterred by the growing market power of established companies. Barriers to entry may have risen. “Antitrust policy and practice . . . have been too permissive,” writes Northeastern University economist John Kwoka, a critic of present policy.

The Obama CEA reached a similar conclusion. “Competition may be decreasing in many economic sectors,” it said. “When there is little or no competition, consumers are made worse off if a firm uses its market power to raise prices, lower quality for consumers, or block entry by entrepreneurs.”

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