IS THERE A CONCENTRATION PROBLEM IN AMERICA? STIGLER CENTER FOR THE STUDY OF THE ECONOMY AND THE STATE UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS 5807 SOUTH WOODLAWN AVENUE CHICAGO, ILLINOIS 60637 Conference Organizers: Luigi Zingales and Guy Rolnik Editor: Guy Rolnik Writer: Asher Schechter Production and Copyediting: Sarah Niemann, Camilo Patiño, Samantha Eyler-Driscoll, and Kirk Ott TABLE OF CONTENTS PANEL 1 WHAT DO THE DATA TELL US? TRENDS IN CONCENTRATION 1| AND COMPETITION PANEL 2 WHAT DOES HISTORY TELL US? THE DEVELOPMENT OF 11| ANTITRUST IN AMERICA PANEL 3 19| CONCENTRATION, MARKET POWER, AND INEQUALITY PANEL 4 30| WINNER-TAKE-ALL DIGITAL PLATFORMS PANEL 5 40| BIG DATA AND COMPETITION KEYNOTE JUDGE RICHARD A. POSNER IN CONVERSATION WITH LUIGI 50| ZINGALES PANEL 6 55| CONSOLIDATION IN THE FINANCIAL INDUSTRY PANEL 7 61| INFORMATION IN THE AGE OF CONCENTRATION PANEL 8 70| IS THERE A ROLE FOR POLITICAL ANTITRUST? 78| INTERVIEW SERIES IS THERE A CONCENTRATION PROBLEM IN AMERICA? EDITOR’S INTRODUCTION by Guy Rolnik oes America have a monopoly problem? Is there a and the role of money in politics. Among the issues we growing trend of concentration in many markets? chose to put on the agenda were political antitrust, big DIs there evidence for correlation between data, horizontal shareholding, comparative outlook concentration and inequality? Do monopoly and market on antitrust enforcement in the United States and power beget political power? European Union and of course how much empirical evidence supports the notion of growing concentration These are questions as old as the republic. From and declining competition and dynamism. the founding fathers, through the progressive era, and perhaps climaxing during the New Deal, American The University of Chicago’s special role and politicians, pundits, public intellectuals, and reformers outsized influence on antitrust in the last 40 years have been pondering and sometimes obsessing over the has been intensively documented and debated, yet role monopoly power plays in economics and politics. the older history and legacy of its intellectuals is less known. Henry Simons, described by Nobel Laureate Yet in the last four decades this discussion has and Chicago economist George Stigler as the “Prince ebbed. One way to see the trend is to read the most of Chicago,” in the early 1930s devoted immense recent platforms of the Democratic and Republican intellectual energy and writing to questions of parties. The words monopoly, concentration, and monopoly power. His famous pamphlet “A Positive antitrust have all but disappeared in the last decades. Program for Laissez Faire” (1934) started as follows: Growing anecdotical evidence and some more The main elements in a sound liberal rigorous studies have started to change the conversation. program may be defined in terms of five Questions of monopoly, market power, and proposals or objectives (in a descending scale of concentration reemerged before the last election and relative importance): I. Elimination of private rhymed with the visceral cries of inequality, stagnant monopoly in all its forms. 1. Through drastic median income, and the “rigged economy”—a phrase measures for establishing and maintaining adopted by candidates across the political spectrum. effectively competitive conditions in all From the digital monopolies, through airlines, cable industries where competition can function as TV, mobile communication, hospitals, finance—the a regulative agency (as a means for insuring list is long—we witness more concentration and market effective utilization of resources and for power in major industries in the US. Some argue preventing exploitation), and 2. Through market power has become the dominant phenomenon gradual transition to direct government in modern, 21st-century capitalism. ownership and operation in the case of all industries where competition cannot be made The evidence of growing concentration in many to function effectively as an agency of control. industries and the dramatic growth and significant economic role of the digital giants are at the backdrop Are Simon’s ideas from the 1930s relevant today? of our initiative to launch a special conference on the Do questions of competiton, concentration, and questions of concentration in the United States. We political power of private monopolies have the same decided to bring together in this discussion not only importance as Simon deemed 80 years ago? This is a the antitrust experts—the industrial organization conversation worthy of initiating or resuming—as we economist and the lawyers—but also historians, aimed to to do in this conference and in the following political scientists, and scholars who study corruption pages. WHAT DO THE DATA TELL US? iii IS THERE A CONCENTRATION PROBLEM IN AMERICA? WHAT DO THE DATA TELL US? WHAT DO THE DATA TELL US? TRENDS IN CONCENTRATION AND COMPETITION • John Kwoka, Neal F. Finnegan Distinguished Professor, Northeastern University • Barry Lynn, Director, Open Markets, New America Foundation1 • Roni Michaely, Rudd Family Professor of Management, Professor of Finance, Cornell University • Fiona M. Scott Morton, Theodore Nierenberg Professor of Economics, Yale University • Carl Shapiro, Transamerica Professor of Business Strategy, Haas School of Business, University of California at Berkeley Moderated by: Patrick Foulis, The Economist oncerns over rising concentration in the US America has a concentration problem supported by economy have become increasingly prevalent empirical evidence? This, agreed the participants of Camong economists, policymakers, and the opening panel of the Stigler Center’s conference investors over the past two years. Following a spate on concentration in America, appears to be the case. of articles that described diminishing competition as “one of the biggest problems facing America’s “It’s the totality of evidence, rather than any economy,” the issue has gained traction in the single study, that underscores the issue [of rising political discourse as well. But is the notion that concentration],” said Northeastern University economist 1Barry Lynn has since left New America and now heads the Open Markets Institute WHAT DO THE DATA TELL US? 1 IS THERE A CONCENTRATION PROBLEM IN AMERICA? John Kwoka, one of the featured panelists. “There’s really April 2016, President Obama’s Council of Economic an absence of evidence to the contrary.” Advisers issued a report that claimed competition has declined in numerous sectors within the American Other than Kwoka, the Neal F. Finnegan economy. A 2017 paper by Gustavo Grullon, Yelena Distinguished Professor at Northeastern University, Larkin, and Roni Michaely found that more than 75 the panel also featured Roni Michaely, the Rudd percent of U.S. industries experienced an increase Family Professor of Management and Professor of in concentration in the last two decades. Numerous Finance at Cornell University; Fiona Scott Morton, studies have argued that rising concentration among the Theodore Nierenberg Professor of Economics at airlines, banks, wireless carriers, and hospitals (along Yale University and former chief economist at the with many other industries) has had anticompetitive US Department of Justice Antitrust Division; Carl effects. Shapiro, the Transamerica Professor of Business Strategy at the Haas School of Business at UC Many economists, however, dispute the claims Berkeley, also former chief economist at the DOJ’s that America has a concentration problem. Some, antitrust division; and Barry Lynn, the director of like University of Chicago Booth School of Business New America’s Open Markets program. professors Sam Peltzman and Dennis Carlton, argue that while the evidence points to a rise in The panel was moderated by Patrick Foulis, New concentration, there is not enough evidence that rising York Bureau Chief at The Economist, who opened concentration leads to adverse economic effects, and the panel with an anecdote on the prevalence of that concentration does not necessarily mean lack concentration and the ambiguity surrounding of competition or decline in quality. Others dispute the issue. “On the way here I took an Uber to the the data itself. In a 2017 interview with ProMarket, airport. On the way, I used an iPhone, which has a Chicago Booth professor (and former chairman of 40 percent market share of smartphones in the US. President Obama’s CEA) Austan Goolsbee said that I took a United flight, which is part of four airlines the evidence that points to a rise in concentration that some have called a cartel in the US. On the flight, “comes from court cases or non-representative I watched DirecTV, which is a media company that samples and is filled with ambiguity and myth.” was bought by AT&T a couple of years ago. I checked into an InterContinental hotel, which is part of an During the Stigler Center panel, most of the industry that’s consolidating rapidly. But to get a featured economists agreed that the claims that sense of the ambiguity, one can think of the same set concentration has risen in America are supported by of incidences in a slightly different light: Uber got empirical evidence. Questions such as what this rise its market share by losing a couple of billion dollars in concentration means for competition and for the a year, essentially subsidizing people like me. Apple US economy and how enforcers and policymakers is part of an industry where traditionally the leader— should deal with it, however, were the subject of a Nokia, Motorola, BlackBerry—only lasts a few years. lively debate that mirrored the debates held among United is part of [an] industry that investors worry antitrust economists and within the economy at large. is about to have a price war. DirecTV, investors worry, is an old technology that Netflix will blow apart. InterContinental is threatened by the likes of Airbnb and Internet travel aggregators. So it’s not a A “SUBSTANTIAL BODY OF EVIDENCE” simple question to answer,” said Foulis, who writes SHOWS A RISE IN CONCENTRATION The Economist’s weekly Schumpeter column and was the author of a March 2016 cover story that examined I’ve yet to see a single study that shows a decline rising corporate concentration and profits.