Jonathan B. Bakery — Marketplace Ability Or Simply Scale Economies?

In this post, which is based on my FTC testimony, I explicate why growing marketplace ability provides a ameliorate explanation for higher price-cost margins too rising concentration inwards many industries, declining economical dynamism, too other contemporary the States trends, than the nearly plausible benign alternative: increased scale economies too temporary returns to the source firms to adopt novel data technologies (IT) inwards competitive markets.

The benign choice has an initial plausibility because the efficient size of firms has probable grown over fourth dimension inwards many industries. That is the natural effect of the high fixed costs of investments inwards data technology, the growing importance of network effects, too an increased range of geographic markets. Under such circumstances, firms could grow larger, concentration could rise, too price-cost margins could increment fifty-fifty if markets are competitive. In addition, the source firms to invest inwards novel data technologies may earn substantial rents. The rents should hold upwards temporary if those investments don’t confer marketplace ability too rivals follow adjust alongside investments of their own.

Yet half-dozen of the nine reasons I gave for thinking marketplace ability is substantial too widening inwards the the States inwards my testimony cannot hold upwards reconciled alongside the benign alternative. I laid forth bear witness showing that anticompetitive coordination, mergers, too exclusion are underdeterred, that marketplace ability is durable, that increased equity ownership of rivals yesteryear fiscal investors softens competition, too that governmental restraints on contest conduct maintain grown. As I explained inwards my testimony, none of the reasons is individually decisive: at that spot are ways to query or force dorsum against each. But their weaknesses are different, so, taken collectively, they pigment a compelling moving painting of substantial too widening marketplace ability over the slowly 20th century too early on 21st century....

The bottom business is that growing marketplace ability is a ameliorate explanation for declining dynamism, rising concentration too markups inwards many industries, too the other reasons for concern, taken equally a whole, than the choice of increasing scale economies too early-adopter rents inwards competitive markets. The benign choice may hold upwards a partial explanation for to a greater extent than or less trends, simply increasing marketplace ability is a fundamental business office of the story.

ProMarket — The weblog of the Stigler Center at the University of Chicago Booth School of Business
Market Power or Just Scale Economies?

Jonathan B. Baker | Research Professor of Law, American University Washington College of Law,  former primary economist at the FTC too the FCC,  and writer of The Antitrust Paradigm: Restoring a Competitive Economy, forthcoming from Harvard University Press.

See also

WCEG — The Equitablog
Understanding the importance of monopsony ability inwards the United States of America task market
Kate Bahn