President Trump Should Abandon Biden’s Misguided War on Big Business (Mark Jamison, 11/14/24, AEIdeas)
Yes, industry concentration has increased—but this trend reflects a more productive economy, not a broken one. Mergers and acquisitions (M&A) have a marginal impact on concentration, and rising concentration is largely a result of two factors: improving productivity and expanding regulation. Ironically, Biden’s regulatory efforts risk making concentration worse, not better. Large firms benefit from regulatory barriers to entry and economies of scale in compliance, leaving smaller competitors at a disadvantage.
Our study examined five potential drivers of industry concentration: productivity, regulation, M&A activity, imports, and information technology (IT). Although data limitations prevented us to showing causation, we did find that productivity is the primary consideration. Larger firms achieve economies of scale, allowing each worker to produce more and giving consumers more of what they want. In other words, concentration signals economic strength, not weakness.
Regulation, the second biggest factor, exacerbates concentration in multiple ways. Large firms can absorb the costs of compliance more easily than small ones, gaining a competitive edge. Regulatory barriers also reduce opportunities for “creative destruction,” a process where new firms can disrupt and replace established players. There are counter examples, such as the 1994 Riegle-Neal Act, an act of deregulation that encouraged industry concentration by allowing interstate banking and branching. But on net, more regulation means larger businesses.
Regulations kill.