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Are US Industries Becoming More Concentrated?

Author

Listed:
  • Gustavo Grullon
  • Yelena Larkin
  • Roni Michaely

Abstract

Since the late 1990s, over 75% of US industries have experienced an increase in concentration levels. We find that firms in industries with the largest increases in product market concentration show higher profit margins and more profitable mergers and acquisitions deals. At the same time, we find no evidence for a significant increase in operational efficiency. Taken together, our results suggest that market power is becoming an important source of value. These findings are robust to the inclusion of (i) private firms; (ii) factors accounting for foreign competition; and (iii) 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 US product markets have undergone a shift that has potentially weakened competition across the majority of industries.

Suggested Citation

  • Gustavo Grullon & Yelena Larkin & Roni Michaely, 2019. "Are US Industries Becoming More Concentrated?," Review of Finance, European Finance Association, vol. 23(4), pages 697-743.
    • Handle: RePEc:oup:revfin:v:23:y:2019:i:4:p:697-743.
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    File URL: http://hdl.handle.net/10.1093/rof/rfz007
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    Keywords

    Product market competition; Mergers and acquisitions; Market power; Concentration levels;
    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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