| Abstract: |
Industry concentration and profit rates have increased significantly in the
United States over the past two decades. There is growing concern that
oligopolies are coming to dominate the American economy. I investigate the
welfare implications of the consolidation in U.S. industries, introducing a
general equilibrium model with oligopolistic competition, differentiated
products, and hedonic demand. I take the model to the data for every year
between 1997 and 2017, using a data set of bilateral measures of product
similarity that covers all publicly traded firms in the United States. The
model yields a new metric of concentrationâbased on network centralityâthat
varies by firm. This measure strongly predicts markups, even after narrow
industry controls are applied. I estimate that oligopolistic behavior causes a
deadweight loss of about 13% of the surplus produced by publicly traded
corporations. This loss has increased by over one-third since 1997, as has the
share of surplus that accrues to producers. I also show that these trends can
be accounted for by the secular decline of IPOs and the dramatic rise in the
number of takeovers of venture-capital-backed startups. My findings provide
empirical support for the hypothesis that increased consolidation in U.S.
industries, particularly in innovative sectors, has resulted in sizable
welfare losses to the consumer. |