A new paper by economist John Van Reenen, presented Friday at the Federal Reserve’s annual symposium in Jackson Hole, Wyoming, argues that new technologies and globalization have amplified the advantages enjoyed by the largest and most productive companies, propelling them to their dominance.
“If more markets are becoming ‘winner-take-all’ as with digital platform competition, this will generate the dominance of ‘superstar firms,’” Van Reenen writes. “The success of such firms may be as much due to intensified competition ‘for the market’ rather than anti-competitive mergers or collusion ‘in the market.’”
The paper kicks off the annual retreat for central bankers hosted in Grand Teton National Park by the Federal Reserve Bank of Kansas City. This year’s conference is focused on the changing structure of real markets — not financial markets — and the implications for monetary policy.
The findings appear consistent with a theory that globalization and rapid technological advancement may facilitate the rise of “superstar firms” such as Apple, Amazon.com and Google, Mr. Van Reenen wrote. As such companies grow more productive and dominant of their markets, a sorting of labor may take place whereby skilled workers increasingly flock to firms employing other skilled workers, and vice versa.
But while he didn’t conclude that anticompetitive behavior is the reason for deepening inequality among companies, Mr. Van Reenen said the largest firms in each industry do appear increasingly likely to remain there five years later. As a result, antitrust authorities would do well to watch out for practices that harm future innovation and competition.
“If superstar firms attain their dominant positions on the merits, it does not mean that they will always use their market power for the good of consumers,” Mr. Van Reenen said. “They have incentives to entrench their position through lobbying, erecting entry barriers and buying up future rivals.”
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