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An Amazon warehouse in central England in November 2017.
Growing monopoly power is seen across the developed world, which could be a contributor to ills ranging from lackluster investment growth to growing income inequality, a new International Monetary Fund report finds.
The IMF paper, released ahead of its World Economic Outlook, finds that firms’ price markups over marginal costs rose by close to 8% since 2000 in advanced countries. The study looked at nearly 1 million firms across 27 countries. It didn’t find the same markups in the emerging markets it studied.
What’s also consistent is that these markups have been concentrated among a small fraction of what it calls dynamic and innovative firms. These firms perform better than others in terms of productivity, they invest more in intangible assets like patents and software, and they’ve gained market share.
The IMF paper doesn’t specifically identify companies but is suggestive of tech heavyweights such as Amazon AMZN, +0.22% and Alphabet’s Google GOOG, -0.26% .
The IMF finds markups only rising for a fraction of companies.
The IMF acknowledges that the driver of this growing market concentration is unclear. “At one extreme, rising market power could be the outcome of greater competition and winner-takes-most dynamics in the digital age,” the paper finds. “At the other extreme, rising market power could reflect an increase in anticompetitive product market regulations or weaker antitrust enforcement.”
But whatever the cause, it’s having negative impacts on the economy. Output would be about 1% higher today in the average advanced economy if markups had not increased since 2000. It’s also reduced what’s called the labor share of income — in other words, the worker slice of the economic pie — by a minimum of 0.2 percentage points, or about 10% of the overall decline across advanced economies.
It’s also made monetary policy more difficult, the report concludes.
“Because a trend rise in markups fosters some economic slack and slightly lowers the natural interest rate, it can deepen a recession when other macroeconomic shocks bring the policy interest rate down to its effective lower bound,” the report said. “Following the 2008 financial crisis, this may have either marginally amplified the recession, pushed central banks to rely even more on unconventional monetary policies, or both.”
The Federal Reserve cut interest rates to nearly zero and boosted its balance sheet to as much as $4.5 trillion, and other major central banks took similar steps.
What to do about it? The IMF says helpful reforms would include “cutting domestic barriers to entry in nonmanufacturing industries, liberalizing trade and foreign direct investment, adjusting competition policy frameworks to deal with emerging issues as needed, easing obstacles to technological catchup by lagging firms, and shifting the burden of corporate taxation onto economic rent.”
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