No, Corporate Concentration Is Not Driving Inflation. Here’s the Data
“Never let a serious crisis go to waste,” Rahm Emanual famously declared during the great economic meltdown of 2008—“it’s the opportunity to do the big things you never thought possible and make ’em possible.” Progressives today are following that advice to a T.
A case in point is using the current elevated rates of inflation (caused by COVID-induced supply-chain problems and massive fiscal stimulus) to blame their favorite bogeyman—the supposedly high levels of corporate concentration. Aha, they shout: Just as we told you, those rapacious corporate barons are taking advantage of their growing market power to jack up prices to the detriment of the hard-working middle class. To the barricades! Now is our chance to cut big corporations down to size!
Sen. Elizabeth Warren (D-MA), a longtime opponent of large corporations, tells us, “Market concentration has allowed giant corporations to hide behind claims of increased costs to fatten their profit margins.” Rep. Pramila Jayapal (D-WA), chair of the Congressional Progressive Caucus, says corporations “have raked in record profits while continuing to raise prices and squeeze families, consolidating to prevent competition and increasing the burden on small businesses and consumers.” And not to be left behind, President Biden, who has appointed anticorporate “neo-Brandeisians” to key antitrust positions, has also weighed in as he blamed consolidation in the meatpacking industry for the higher rise in meat prices.
These elected officials have been egged on by a raft of anticorporate advocacy groups and activists. Matt Stoller, of the American Economic Liberties Project tweeted, “I’ve never seen such anger from economists as I have since we started presenting the argument market power and inflation are related.” American Prospect editor Bob Kuttner blames “the opportunistic use of those bottlenecks by hyper-concentrated industries to raise prices.” Joining the chorus, liberal pundit Robert Reich states “the underlying problem isn’t inflation per se. It’s lack of competition.” Who is writing their talking points?
To be fair, theirs is an easy case to make. There are hundreds of industries with different levels of concentration and different levels of price and profit changes. If you can find a few that have relatively high concentration and price increases—like meatpacking—then voila; you are in business. Inflation is a villain straight from Central Casting that makes your broader point about increases in concentration. Moreover, according to new research, we now live in a world where feelings and opinions are more important than facts and logic, so if Matt Stoller feels that inflation is caused by concentration, who are we to question him?
There are only two minor problems. The first is that, as ITIF reported in June, the most recent Census Bureau data shows industry concentration has not really gone up in the decade and a half from 2002 to 2017, at least as evidenced in the standard benchmark C4 ratios, which represent the total market share held by the top four firms in a given industry. In fact, at the most detailed, 6-digit level of industry-classification codes, the average C4 ratio went up just 1 percentage point—from 34.3 percent to 35.3 percent. Moreover, the more concentrated industries were in 2002, the more likely they were to become less concentrated by 2017.
Second, and most important, ITIF has crunched the numbers further and has found there is no correlation between industry concentration levels in 2017 (the latest year for which Census data is available) and consumer price increases between December 2020 and December 2021. Well, to be fair, it’s not zero correlation. In the 127 industries for which the Bureau of Labor Statistics has data on prices available to cross-reference with the Census data on concentration, the correlation coefficient is 0.0096. So, we’ll just say the correlation is very close to zero. Either way, the data do not support the claim that industry concentration is driving inflation.
Here is the data. Feel free to poke at it.
On the other hand, data is becoming passé these days. So, as long as you feel concentration is causing inflation, feel free to believe it, too.