Wednesday, June 27, 2018
Sam Peltzman, University of Chicago explores Productivity and Prices in Manufacturing During an Era of Rising Concentration. Worth reading!
ABSTRACT: Concentration has increased over the last 30 years or so in a variety of industries. This development has raised concern about weakened competition and resulting harm to consumers. Calls for tougher antitrust enforcement have become louder. There is also concern that rising concentration may be at least symptomatically related to declining business dynamism and lower productivity growth. There is, however, only sporadic evidence on these matters. This paper provides more systematic evidence on the interplay between concentration, prices and productivity across several hundred US manufacturing industries over two 15 year periods from 1982-2012. The consistent pattern is that high and rising concentration has been on average associated with better productivity growth. Rising concentration has also been associated with widening margins of price over input costs. On balance, the net price effects are trivial. Accordingly some skepticism about tougher merger policy may be warranted, since this would risk harm to productivity without benefiting consumers.