Later On

A blog written for those whose interests more or less match mine.

Want a More Dynamic Economy? Rein in the Size of Big Market Incumbents.

leave a comment »

Very interesting post by Kevin Drum in Mother Jones:

OK then. Aside from a momentary laugh at Donald Trump’s expense, why else was I reading James Surowiecki’s recent piece about startup companies? The pointer came from Jim Pethokoukis, who has been writing about the decline of American entrepreneurship for quite a while. This is potentially something to be concerned about, but I’ve always held back a bit. The problem is distinguishing between different kinds of startups. There’s no question that we have fewer of them than we used to, but a lot of that is due to large companies taking over the mom-and-pop space in restaurants, retail, and other small businesses. Whatever your personal opinion of that is, there’s not much reason to think the country as a whole is suffering because Wal-Mart has made it harder to start up a small general store and McDonald’s has made it harder to start up a small local diner.

What we really care about are the kinds of startups that launch innovative products or adopt innovative business techniques to build whole new markets. Think light bulbs, radios, cars, package delivery, software, and social networks. Those are the kinds of entrepreneurs we don’t want to discourage.

And apparently we aren’t discouraging them—at least in the true startup phase. Surowiecki points us to some recent research suggesting that “high-quality” startups are as plentiful as ever:

New work by the MIT economists Scott Stern and Jorge Guzman shows that in 15 U.S. states between 1988 and 2014 there was no long-term decline in the formation of what they call “high-quality” startups…But there is a catch. While Stern and Guzman show that high-growth firms are being formed as actively as ever, they also find that these companies are not succeeding as often as such companies once did….As many seeds as ever are being planted. But fewer trees are growing to the sky.

Stern and Guzman are agnostic about why this is happening.But one obvious answer suggests itself: the increased power of established incumbents. We may think that we have been living in a business world in which incumbents are always on the verge of being toppled and competitive advantage is more fragile than ever. And clearly there are industries in which that has been the case—think of how Amazon transformed book retailing, or how digital downloads and streaming disrupted the music business. But as Hathaway and Litan document, American industry has grown more concentrated over the last 30 years, and incumbents have become more powerful in almost every business sector. As they put it, “it has become increasingly advantageous to be an incumbent, and less advantageous to be a new entrant.” Even in tech, the contrast is striking between the ferment of the late 1990s, when many sectors had myriad players struggling for share, and the seeming stability of today’s Google/Amazon/Facebook-dominated world.

I would argue that this is yet another reason to be very skeptical of modern antitrust law and its emphasis on “consumer welfare.” Forty years of experience suggests that it just hasn’t worked: instead of producing an economy that’s good for consumers, it’s produced an economy dominated by large companies that have little to fear from antitrust authorities. They’re allowed to get as big as they want as long as they’re able to make a plausible case that increased bigness is good for consumers—and they’re very, very good at making that case. As a result, big market incumbents get ever bigger, and startups have an ever harder time in ever more markets. In the long run, this is decidedly not very consumer friendly.

If we want a more dynamic economy, we should . . .

Continue reading.

Written by LeisureGuy

22 June 2016 at 8:46 am

Posted in Business, Government, Law

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s