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Are U.S. Industries Becoming More Concentrated?

Author

Listed:
  • Gustavo Grullon

    (Rice University - Jesse H. Jones Graduate School of Business)

  • Yelena Larkin

    (York University - Schulich School of Business)

  • Roni Michaely

    (University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute)

Abstract

In the last two decades, over 75% of U.S. industries have experienced an increase in concentration levels. We find that firms in industries with the largest increases in product market concentration have enjoyed higher profit margins and more profitable M&A deals. At the same time, we do not find evidence of a significant increase in operational efficiency, which suggests that market power is becoming an important source of value. These findings are robust to the inclusion of private firms, factors that account for foreign competition, as well as to the use of alternative measures of concentration. We also show that the higher profit margins associated with an increase in concentration are reflected in higher returns to shareholders. Overall, our results suggest that the nature of U.S. product markets has undergone a shift that has potentially weakened competition across the majority of industries.

Suggested Citation

  • Gustavo Grullon & Yelena Larkin & Roni Michaely, 2019. "Are U.S. Industries Becoming More Concentrated?," Swiss Finance Institute Research Paper Series 19-41, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1941
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    Keywords

    industry concentration; HHI; product markets; profit margins; publicly-traded firms; M&A; antitrust;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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