Are U.S. Industries Becoming More Concentrated?

Forthcoming, Review of Finance

80 Pages Posted: 31 May 2015 Last revised: 27 Oct 2018

See all articles by Gustavo Grullon

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

Yelena Larkin

York University - Schulich School of Business

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI)

Date Written: October 25, 2018

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

Suggested Citation

Grullon, Gustavo and Larkin, Yelena and Michaely, Roni, Are U.S. Industries Becoming More Concentrated? (October 25, 2018). Forthcoming, Review of Finance. Available at SSRN: https://ssrn.com/abstract=2612047 or http://dx.doi.org/10.2139/ssrn.2612047

Gustavo Grullon (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

Yelena Larkin

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

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