Lina Khan’s whole new level of economic bloodletting

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The Biden administration in its Executive Order on Promoting Competition in the American Economy and, more pointedly, the Federal Trade Commission in many of its actions of the last two years, assert that harmful market concentration is on the rise. To combat this trend and its attendant injuries, Biden administration officials claim antitrust regulation must be expanded. But both the claims that market concentration is widespread and that it is intrinsically harmful are not settled matters. Some research suggests that government regulation itself, like expansive antitrust enforcement, actually increases market concentration.

In a 2021 paper, FTC Chair Lina Khan wrote:

The decline in competition is so consistent across markets that excessive and undue market power now look to be not an isolated issue but rather a systemic feature of America’s political economy. This is troubling because monopolies and oligopolies produce a host of harms. They depress wages and salaries, raise consumer costs, block entrepreneurship, stunt investment, retard innovation, and render supply chains and complex systems highly fragile. Dominant firms’ economic power allows them, in turn, to concentrate political power, which they then use to win favorable policies and further entrench their dominance.

Khan’s opinion is echoed by many in policy circles, but Robert Kulick and Andrew Card in their paper Industrial Concentration in the United States: 2002 -2017 come to the opposite conclusions. Kulick and Card argue that there, “is no general trend towards increasing industrial concentration in the U.S. economy from 2002 to 2017.”

In fact, their findings indicate in, “both the U.S. manufacturing sector and the broader U.S. economy, industrial concentration has been declining since 2007.” The authors account for these contrary findings by having corrected several methodological errors of previous studies.

Contrary to the claim that concentration is “systemic,” the authors find that industrial concentration levels, “demonstrate a distinct tendency towards mean reversion suggesting that trends in concentration are influenced by transient economic shocks that dissipate in future periods.”

That phenomenon recommends against government meddling. If the market is successfully correcting back towards a more competitive state, there is even less reason to endure the harmful, unintended consequences that regulatory intervention inevitably brings.

Perhaps most encouraging is the paper’s evidence that increases in industrial concentration are, “associated with output growth, job creation, and higher employee compensation.” This means that far from being economically harmful, the more concentration in an industry, the more sales, the more employment and the higher the wages to workers. That is very nearly the dead opposite of assertions from champions of expanding regulations.

Still, Chair Khan may be correct when she writes in the same paper mentioned above, “concentration begets concentration,” though perhaps not in the way she assumes.

A recent study, Regulatory Costs and Market Power by Skikhar Singla, implicates increased regulation with triggering increased concentration. The author first calculates that regulatory costs have increased a staggering $1 trillion from 1970 to 2018. To discover if there is causal [CH1] relationship between regulations and concentration, the paper compares small and large firms in the same state, in the same industry and at the same time.

This is the result reported in the paper: “We find that increase in regulatory costs leads to small firms becoming smaller and large firms becoming larger. It also leads to an increase in markups and profitability of very large firms.”

It is the very “cure” Khan and her fellow regulatory enthusiasts prescribe that may be making the patient ill.

Before the constraint of the consumer welfare standard, bad antitrust law routinely caused or exacerbated the very problem it was aiming to solve. Breaking up market leaders who’ve attained their dominance through superior efficiencies leads to lower output and higher prices for consumers.

But expanding antitrust regulation to fight market concentration that may or may not even exist and that perhaps causes no harm is a whole new level of economic bloodletting.