Here’s How They Play Monopoly in America, and Who Wins

(Bloomberg) -- Competition in the marketplace is a good thing. Lower prices. More innovation. Better goods and services.

Now we may have too little of that good thing, as big corporations gobble up the economic pie. Market concentration has reached a three-decade high and, since the late 1990s, has increased in more than 75 percent of U.S. industries, according to a working paper given last week at the University of Chicago's Booth School of Business. Market concentration is how much of a market, such as the wireless or automobile market, the leaders in that industry control, by revenue.

At the same time, the federal government has brought significantly fewer antitrust cases, according to the paper, titled “Is There a Concentration Problem in America?” In 2014, the Department of Justice didn't open any cases against monopolies at all, and opened just three in 2015. That compares to 22 cases in 1994.  

Gustavo Grullon, a finance professor at Rice University's business school and one of the paper's three authors, acknowledged they can't infer a causal relationship between the increased market concentration and the decline in the number of antitrust cases, but said he thinks the correlation is strong enough to require “serious attention from regulators.” The other two authors are also business school professors, from Cornell University, and York University, in Canada. Their research was cited by a recent Wall Street Journal investing column.  

In the most recent draft of the working paper, the researchers, who had already found increasing market concentration, set out to determine what's driving the trend. The data they discovered led them to reject several of their hypotheses, including that the uptick was a result of consolidation of companies in unprofitable or distressed  industries, such as publishing and textiles. The data did suggest, aside from antitrust enforcement, that patents are serving as “technological barriers to entry,” keeping out potential competitors.

“It is an important aspect of the economy, and it's the responsibility of agencies to figure out if this is an issue or not,” Grullon said.

During Bill Clinton's presidency, the Justice Department brought a higher number of monopoly cases under Section 2 of the Sherman Antitrust Act, perhaps most notably the 1998 monopoly and anti-competitive practices lawsuit against Microsoft Corp. In all, the Justice Department averaged about 13 cases a year during Clinton's two terms. This period coincided with a sharp decrease in market concentration.

Under George W. Bush, the department averaged three cases a year. As a candidate, Barack Obama accused the Bush administration of being too lax when it came to antitrust enforcement, but no crackdown came in his own administration. To the contrary, the government averaged just two antitrust cases a year under Obama. Grullon said market concentration rose dramatically over both of their presidencies. An early landmark Section 2 case was the Justice Department's 1909 lawsuit against John D. Rockefeller's Standard Oil Company, which ultimately led to the company's forced breakup.

“When you have significant economic power, that can bring political power and anti-democratic pressures," said Maurice Stucke, a law professor at the University of Tennessee and a former Justice Department attorney. "We're starting to see highly concentrated industries, profits accruing to a handful of firms, and fewer startups. And then you look at the impacts it could have on innovation and wealth inequality.” 

The Obama administration did block several mergers in its second term, stopping mega-deals like Anthem Inc.'s merger with Cigna Corp. Stucke said the federal government needs to crack down harder on mergers, which can contribute to increased market concentration. 

Stucke, who spoke at last week's conference, said attendees were interested in how President Donald Trump might approach antitrust matters.

President Trump stumped as a populist insurgent, telling voters he would investigate Amazon.com Inc. for possible antitrust violations and block AT&T Inc.'s proposed acquisition of Time Warner Inc. The president announced last week that he would nominate a former Justice Department antitrust lawyer, Makan Delrahim, to lead the department's antitrust division. Delrahim doesn't see the AT&T deal as a "major antitrust problem," Bloomberg reported recently. 

William Baer, the most recent head of the division, oversaw the 2013 trial of book publishers accused of conspiring with Apple Inc. to fix the prices of e-books. Since then, the average price of an e-book bestseller has declined to about $6 from about $13, according to the Justice Department.

Delrahim didn't respond to a request for comment about the decline in antitrust cases. The Justice Department declined to make an official available for comment. 

The obvious concern, Stucke said, is that Trump will treat monopolies the way his Republican predecessor did. Still, he said, Trump could very well surprise people.

“Everyone says it's going to be like the Bush administration,” Stucke said. “But I'm looking at Makan, and depending on who he brings in as his deputies, there could be really strong intellectual leadership. I don't see him as an ideologue wedded to the old economic beliefs.”

—With assistance from David McLaughlin

To contact the author of this story: Lance Lambert in New York at llambert22@bloomberg.net.

To contact the editor responsible for this story: Peter Jeffrey at pjeffrey@bloomberg.net.