ON SOME TRENDS TOWARD THE MARKET POWER CONCENTRATION AND THEIR CONSEQUENCES

Author
, Doctor of Sciences (Economics), Professor, Professor of Economics Department, Lviv, prospekt Svobody, 18
, PhD in Economics, lecturer at the Department of Management and Organizational Development, Ukraine, Lviv

In heading

 Economic theory;

Signed print

 22.12.2023

Issues number

 2023-№4 (55)

Page

 6-20

Type of articles

 Scientific article

Code UDK

 330.341.44:334.758

ISSN print

 2411-5584

Abstract

 Problem setting. Competition, along with property rights protection, economic freedom, and efficient pricing mechanisms, represent the market economy fundamentals, contributing to economic progress and welfare. This way, recent trends toward the concentration of market power in developed economies caused some concerns among scholars and politicians.
Recent research and publications analysis. Current research focuses on the efficiency of indicators used to measure market power, analyzing factors that determine and affect the process of its concentration, studying the current and potential consequences, as well as analyzing antitrust policies in developed economies, and proposing changes necessary to meet new challenges.
Paper objective. The article aims to study economic preconditions and the nature of the trend toward the concentration of market power and its potential consequences.
Paper main body. The trend toward market power concentration in developed economies can be traced back to the early 1980s. This trend is observed using alternative market power indicators and is characterized by essential differences concerning countries’ geographical positions and industry specifics. The distinctive attribute of the trend is the concentration of market power among a relatively small group of firms that gained a dominant position and persistently charge high price markups. More strictly, the rise in market power is concentrated at the top decile of the markup distribution.
Numerous factors were mentioned as plausible explanations of the trend noted, namely economies of scale, the emergence and diffusion of network externalities and increase in network goods share, a rise in fixed or sunk costs, improved product differentiation, monopsony effects in labor markets, the rise in mergers and acquisitions by dominant firms, an increase in rent-seeking behavior, reduced antitrust enforcement, etc. A critical common factor here is rapid technological change, which allows firms to create and protect market power opportunities more efficiently.
The trend toward market power concentration caused several essential effects. On the industry level, it means less competition for dominant firms and better opportunities for their abuse of growing market power, resulting in a broad-based decline in business dynamics within the economy. Among substantial macroeconomic effects, the slowdown in innovations and investment rates, the decline in labor income share, and the reduction of monetary and fiscal policies are most often noted. One more considerable result of corporate market power concentration is associated with better opportunities to put some pressure on political and antitrust authorities.
Despite that, many important questions remain concerning the validity of methods used to measure markups and the ratio of positive and negative effects of market power concentration. According to a group of IMF staff, there is no definitive answer if the rising market power reflects growing rewards for successful entrepreneurial efforts or a harmful decline in competition. At least, all considered researchers agree that a new wave of future studies will be needed to find satisfying answers to the questions noted.
Conclusions of the research. The essential attribute of the current trend is the concentration of market power among a relatively small group of firms that gained a dominant position and persistently charge high price markups. A critical common factor of numerous possible explanations of this trend is rapid technological change, which allows firms to create and protect market power opportunities more efficiently. Still, the fundamental question of whether the rising market power reflects growing rewards for successful entrepreneurial efforts or a harmful decline in competition remains open.
Short abstract for an article
Abstract. The features of the recent trend toward market power concentration in developed economies, along with its main determining factors are studied. The most important effects of this process, namely the strengthening of dominant firms’ positions, the slowdown of entrepreneurial activity in the economy, the decline in labor income share, as well as the reduction of monetary and fiscal policy efficiency, are analyzed.

Keywords

 competition, market power, markup, concentration, concentration ratio, mergers and acquisitions, antitrust legislation.

Reviewer

External reviewer

Article in PDF

 6-20

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Code DOI

 https://doi.org/10.31359/2411-5584-2023-55-4-6

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This post is also available in: Ukrainian

22.12.2023