Economic Insights — Economywide measures indicate that big firms are coming to dominate markets, raising prices and reaping greater profits. There is reason to pause before interpreting this evidence as a call for government intervention.
Antitrust legislation exists to ensure that big firms don't dominate markets. Recent years have seen broad-based increases in product market concentration across most industries, suggesting that big firms are indeed coming to dominate. However, the benefits of concentrating economic activity can sometimes outweigh the costs of larger firms profiting from their market power. Much also depends on how we measure market power, and what markets we look at.
This article appeared in the Second Quarter 2021 edition of Economic Insights. Download and read the full issue.
