Are U.S. Industries Becoming More Concentrated?

Abstract

In the last two decades, over 75% of U.S. industries have experienced an increase in concentration levels. We find that firms in industries with the largest increases in product market concentration have enjoyed higher profit margins and more profitable M&A deals. At the same time, we do not find evidence of a significant increase in operational efficiency, which suggests that market power is becoming an important source of value. These findings are robust to the inclusion of private firms, factors that account for foreign competition, as well as to 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 nature of U.S. product markets has undergone a shift that has potentially weakened competition across the majority of industries.

Keywords: industry concentration; HHI; product markets; profit margins; publicly-traded firms; M&A; antitrust

JEL Classification: G18, G30, G34, G48, L40, L10