WASHINGTON—Many economists, advocates, and policymakers have argued that rapidly growing “superstar” firms are commanding large market shares in their industries because of lax antitrust enforcement rather than inherently superior business performance. But a new report released today by the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, examines the scholarly literature and concludes a more plausible explanation is that they are better at leveraging technology, particularly information technology (IT); intangible assets such as employee skills; and innovative organizational designs to boost productivity and create value.
“The nature of current process and product technologies and global market operations enables some firms to significantly outperform others, creating more public value in the process,” said ITIF Senior Fellow Joe Kennedy, who authored the report. “Rather than decry this development and attempt to hold back successful firms, advocates should be celebrating it and identifying ways to help lagging firms do better.”
Assessing the evidence, the report points out it is far from clear that current markets are suffering from lax antitrust enforcement. Although market concentration has increased, most industries remain far below the level of concentration that would normally trigger antitrust concern. Nor have large companies enjoyed exceptional margins or profits. Examining the data, the obvious signs of market power are hard to find.
On the contrary, the rise of so-called superstars appears to reflect their greater and more effective investment in IT and hard-to-measure intangible assets including managerial skills and organizational design. These investments have allowed the companies to gain market share against their rivals.
“If there is a policy problem, it is not the success of ‘superstar’ firms; it’s the failure of laggards to catch up,” Kennedy added. “Regulators certainly should ensure there is adequate market competition. But current antitrust law and practice—which stresses various aspects of consumer welfare including prices, quality, and innovation—is already capable of addressing violations. More broadly, regulators need to ensure that in worrying too much about concentration they don’t end up worrying too little about productivity and consumer welfare.”