Information Technology and Industry Concentration
46 Pages Posted: 2 Oct 2017 Last revised: 5 Apr 2018
Date Written: December 1, 2017
Industry concentration has been rising in the US since 1980. Firm operating margins have also been rising. Are these signs of declining competition that call for a new antitrust policy? This paper explores the role of proprietary information technology systems (IT), which could increase industry concentration and margins by raising the productivity of top firms relative to others. Using instrumental variable estimates, this paper finds that IT system use is strongly associated with the level and growth of industry concentration and firm operating margins. The paper also finds that IT system use is associated with relatively larger establishment size and labor productivity for the top four firms in each industry. Successful IT systems appear to play a major role in the recent increases in industry concentration and in profit margins, moreso than a general decline in competition.
Keywords: information technology, computers, industry concentration, profit margins, antitrust, productivity dispersion
JEL Classification: D4, O33, L10, L4
Suggested Citation: Suggested Citation