Are U.S. Industries Becoming More Concentrated?

Abstract

Over 75% of U.S. industries have registered an increase in concentration levels over the last two decades. Firms in industries with the largest increases in product market concentration have realized higher profit margins, positive abnormal stock returns, and more profitable M&A deals, which suggest that market power is becoming an important source of value. This paper posits two crucial factors behind this trend: one, lax enforcement of antitrust regulations; and two, increasing technological barriers to entry. These findings are robust to the inclusion of private firms, factors that account for foreign competition, as well as the use of alternative measures of concentration. Overall, our findings suggest the nature of U.S. product markets has undergone a structural shift that has weakened competition across a 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