June 01, 2018

Credit: AP Photo / Dave Martin

If you go to your local liquor store or beer cellar, it may seem like you have thousands of options. And there’s certainly a lot of beer on the shelves. Not just Michelob or Miller Lite, but smaller-batch brews with names like Spitting Hobo or Dead Dragon. But though there might be a huge number of beer varieties, the American beer industry is mostly controlled by a handful of breweries that control nearly 90 percent of the American beer market. And this consolidation isn’t only a story of beer. The biggest four U.S. airlines reap 65 percent of the industry’s revenue, compared to ten years ago, when they only took in 41 percent. To find out more about why corporations are getting more powerful, we talked with David Wessel, a senior fellow in economic studies at The Brookings Institution, and author of the recent Harvard Business Review article, “Is Lack of Competition Strangling the U.S. Economy?

Three Takeaways:

  • There’s evidence that having more industries controlled by fewer companies is bad for both consumers and workers. Wessel points out that if a few big employers dominate an industry, wages tend to go down, while prices tend to go up.
  • So, why is this happening now? One reason is that there are a lot of mergers, and the government isn’t being particularly aggressive in stopping them. Ever since the Reagan administration, antitrust policies haven’t been strongly enforced. Another reason is that new technology makes it much more efficient to be a large corporation, allowing them to easily exploit economies of scale.
  • An obvious example of corporate consolidation is in the tech sector, where Amazon, Apple, Facebook, and Google control so much of the industry. One of the ways they do that is by buying up the competition (think of Facebook’s acquisition of Instagram). Wessel says it is difficult to tell whether these newer companies would ever become big enough to rival a giant like Facebook, or if the acquisition itself is a net positive, allowing the smaller company to use powerful infrastructure to spread its ideas more quickly.

More Reading:

Business, David Wessel, Mergers, corporations, economy

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