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Technology-Driven Market Concentration through Idea Allocation

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  • Yueyuan Ma
  • Shaoshuang Yang

Abstract

Using a newly-created measure of technology novelty, this paper identifies periods with and without technology breakthroughs from the 1980s to the 2020s in the US. It is found that market concentration decreases at the advent of revolutionary technologies. We establish a theory addressing inventors’ decisions to establish new firms or join incumbents of selected sizes, yielding two key predictions: (1) A higher share of inventors opt for new firms during periods of heightened technology novelty. (2). There is positive assortative matching between idea quality and firm size if inventors join incumbents. Both predictions align with empirical findings and collectively contribute to a reduction in market concentration when groundbreaking technologies occur. Quantitative analysis shows the overall slowdown in technological breakthroughs can capture 95.9% of the rising trend in market concentration and the correlation between the model-generated and the actual detrended market concentration is 0.910.

Suggested Citation

  • Yueyuan Ma & Shaoshuang Yang, 2025. "Technology-Driven Market Concentration through Idea Allocation," Working Papers 25-78, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:25-78
    as

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    File URL: https://www2.census.gov/library/working-papers/2025/adrm/ces/CES-WP-25-78.pdf
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    References listed on IDEAS

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    1. 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.
    2. Nicholas Bloom & Charles I. Jones & John Van Reenen & Michael Webb, 2020. "Are Ideas Getting Harder to Find?," American Economic Review, American Economic Association, vol. 110(4), pages 1104-1144, April.
    3. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    4. Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64, Elsevier.
    5. Ufuk Akcigit & Murat Alp Celik & Jeremy Greenwood, 2016. "Buy, Keep, or Sell: Economic Growth and the Market for Ideas," Econometrica, Econometric Society, vol. 84, pages 943-984, May.
    Full references (including those not matched with items on IDEAS)

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