Market Power and Inequality: The Antitrust Counterrevolution and Its Discontents

Summary

In recent years, economic inequality has become a central topic of public debate in the United States and much of the developed world. The popularity of Thomas Piketty’s nearly 700-page tome, Capital in the Twenty-First Century, is a testament to this newfound focus on economic disparity. As top intellectuals, politicians, and public figures have come to recognize inequality as a major problem that must be addressed, they have offered a range of potential solutions. Frequently mentioned proposals include reforming the tax system, strengthening organized labor, revising international trade and investment agreements, and reducing the size of the financial sector.

One underexplored theme in this larger debate is the role of monopoly and oligopoly power. Given the current distribution of business ownership assets in the United States, market power can be a powerful mechanism for transferring wealth from the many among the working and middle classes to the few belonging to the 1% and 0.1% at the top of the income and wealth distribution. In concrete terms, monopoly pricing on goods and services turns the disposable income of the many into capital gains, dividends, and executive compensation for the few. Evidence across a number of key industries in the United States indicates that excessive market power is a serious problem. Firms in industries ranging from agriculture to airlines collude, merge and exclude rivals, and raise consumer prices above competitive levels, while pushing prices below competitive levels for suppliers. The aggregate wealth transfer effect from pervasive monopoly and oligopoly power is likely, at a minimum, hundreds of billions of dollars per year.

The article proceeds as follows. Part I examines how market power contributes to economic inequality. Part II provides case studies of anticompetitive practices and non-competitive market structures in several key industries. Part III lays out how economic power often translates into political power. Part IV traces the political decision, initiated by the courts in the late 1970s and applied comprehensively by the Reagan administration, to narrow the scope of the antitrust laws—a choice that has permitted large corporations to dominate our markets and politics. Part V presents a vision of the antitrust laws that accords with what Congress intended in enacting these landmark statutes and offers specific policy prescriptions.