Do Monopolies Actually Benefit Consumers?

Both Republican and Democratic politicians have been sounding alarms about market power in the United States, arguing that a few companies such as Amazon, Facebook, and Google have become too dominant. In July 2021, the White House issued an executive order and statement doubling down on antitrust law enforcement, with a promise to reign in “corporate consolidation” and “bad mergers” in the interest of US consumers.

A growing body of research supports this notion, pointing to a regulatory leniency over the past few decades that is driving concentration across US markets and segments. Stanford’s C. Lanier Benkard and Ali Yurukoglu and Chicago Booth’s Anthony Lee Zhang provide more support for this claim—in part. The researchers find abundant evidence of rising concentration at the broader market level, with more mergers, fewer players, and a rise in organizations with high market share. 

But they find a different picture at the level of individual products, where more concentration has led to more competition. 

Monopolies are generally considered to be bad for consumers and the economy. When markets are dominated by a small number of big players, there’s a danger that these players can abuse their power to increase prices to customers. This kind of excessive market power can also lead to less innovation, losses in quality, and higher inflation. 

Thus, US legislators have historically sought to limit the market power of large corporations. Three major antitrust laws have been passed by Congress over the past century, all aimed at prohibiting price-fixing, preventing monopolies, and driving free competition as the rule of trade. 

But the discussion about concentration has traditionally centered on the number of companies operating and competing in different segments, with less attention paid to the situation at the individual product level. When there are fewer players producing goods and services, does it follow that there are fewer goods and services to choose from—and therefore less choice for consumers in terms of prices? 

The researchers analyzed newly available data from MRI-Simmons, a provider of attitudinal and behavioral US consumer insights, to reexamine and reassess trends in concentration in US product markets between 1994 and 2019. Indeed, they see divergent patterns emerge when it comes to companies and products. 

In the area of household goods, for instance, corporate concentration has increased. Procter & Gamble and Phoenix Brands, among other larger companies, have systematically acquired the makers of brands such as Tide, Cheer, Ajax, and Fab in the detergents category.