Competition Increases Concentration

A market with 1,000 tiny sellers is not some ideal market. Concentration can be extremely beneficial, leading to economies of scale and stiffer competition to win a big share of the market.

Yet the Federal Trade Commission (FTC) and U.S. Justice Department’s (DOJ) draft merger guidelines double down on the idea that concentration is inherently a problem. They add new structural presumptions against concentration, for both horizontal and vertical mergers. Even worse, the agencies won’t recognize any efficiencies “if they will accelerate a trend toward concentration.”

The problem? Concentration is not a good proxy for competition. This post will go through some of the empirical work that generally finds that competition increases concentration. The FTC/DOJ are completely at odds with the economic literature on this point.

Read the whole piece here.