Wednesday, October 25, 2017
Oligopolies, Prices, and Quantities: Has Industry Concentration Increased Price and Restricted Output?
Sharat Ganapati, Dartmouth College, Department of Economics asks Oligopolies, Prices, and Quantities: Has Industry Concentration Increased Price and Restricted Output?
ABSTRACT: American industries have grown more concentrated over the last few decades, driven primarily by the growth of the very largest firms. Classical economics implies that this should lead to hikes in prices, reduction in output, and decreases in consumer welfare. I investigate forty years of data from 1972-2012 using publicly available market shares and price indices for both the manufacturing and non-manufacturing sectors and find mixed evidence. Manufacturing concentration increases are indeed correlated with slightly higher prices, but not lower output. However concentration increases are correlated with increases in productivity, offsetting a large portion of the price increase. In contrast, non-manufacturing concentration increases over the last twenty years are not correlated with observable price changes, but are correlated with increases in output.