Unmasking Greedflation: Debunking the Neo-Brandeisian Narrative

As high inflation continues, neo-Brandeisians and other anti-corporate proponents are claiming that the rise in prices is because of “greedflation,” which they define as big corporations abusing their market power to price gouge consumers and raise profits. Indeed, in recent weeks, Matt Stoller of the American Economic Liberties Project wrote that U.S. oil producers colluded with OPEC to gain market power and raise oil prices, costing consumers about $200 billion a year. More generally, Senator Elizabeth Warren (D-MA) asserted that “companies…have obtained market power using illicit means to raise prices for consumers who are faced with corporate monopolies.” Despite these assertions, the neo-Brandeisians and their allies have not provided sufficient evidence to support their claim that greedflation is the cause of higher prices. In fact, economists and other policy experts have made concrete rebuttals to this assertion while finding that the cause for high inflation is likely due to other economic factors. As a result, policymakers should focus their efforts on finding the real causes of inflation—e.g., supply chain bottlenecks—rather than attacking large corporations.

The claim that market power is the source of high inflation hinges on weak evidence. Indeed, Eric Levitz wrote in the New York Magazine that the primary evidence for the greedflation “is the correlation between rising inflation following the pandemic and an increase in corporate profits.” As law and business professor Barak Orbach has explained, the fall in prices to some of their lowest points in 2020 before rising again to a peak in June 2022 occurred simultaneously with an increase in corporate profits popularized the greedflation theories. In other words, the correlations they use as evidence are spurious (non-causal) relationships. Additionally, the greedflationists try to bolster their arguments with studies on concentration, an indirect measure of market power, and inflation. For example, an often-cited Boston Fed study found that “pass-through becomes about 25 percentage points greater when there is an increase in concentration.” Yet, the study uses problematic Compustat data that cannot accurately measure concentration in the economy since it only includes data on public firms.

The greedflation narrative does not hold water. First, an article by economist Mike Walden rightly argues that profit rates, a good measure of whether companies are abusing their market power to increase profits, have not increased and are similar to the historic average of the last forty years at about 4 percent. On the flip side, economist David Autor has asserted that even if “market concentration is a longstanding problem…we’ve had close to no inflation for two decades. So it cannot be that market concentration suddenly explains inflation.” Indeed, a Federal Reserve study found that market power is unlikely to be the cause of high inflation because “aggregate markups across all sectors of the economy…has stayed essentially flat during the post pandemic recovery.” Moreover, as commentators have noted, in reality, the correlation is negative between 2017 C4, or the market share of the four largest firms in an industry, and the annual rate of change in prices in a 24-month period, meaning that industries with more market power could have less inflation. Indeed, a New York Times article also suggested that studies on concentration and inflation have found that competitive industries sometimes raise prices more than those dominated by a few firms. Finally, economist Chris Conlon also found no relation between markups (a measure of market power) and prices from 1980 to 2018—correlation coefficient was 0.0002.

The cause of rising inflation is likely due to economic factors other than market power. For instance, some have stipulated that rising inflation is a result of high consumer demand and low supply. Indeed, economist Mike Walden wrote that the Covid-19 relief programs provided consumers with an extra $6.5 trillion to spend yet they could not do so because of low supply from supply chain bottlenecks, which contributed to inflation. Corroborating this, economist William Dicken asserted that as a result of the pandemic, prices and, subsequently, profits were bound to go up since many companies could not find shipping containers for their products. Similarly, others have also concluded that supply chain issues could be a primary reason for high inflation given that “as the economy’s productive capacity has recovered, and supply has grown less constrained, profit margins have fallen.” Finally, a study by the Kansas City Fed argued that firms raised prices because they anticipated their future costs to increase, possibly from supply chain bottlenecks.

Unfortunately, despite the lack of evidence, the greedflation narrative appears to have made its way to the antitrust agencies, who are already hostile to large corporations, especially when they can be viewed as tech platforms. For example, the Department of Justice recently filed a suit against Live Nation and Ticketmaster claiming that the company has “monopoly power in primary ticketing for major concert venues…[and] where Ticketmaster has a higher market share relative to other markets, Ticketmaster is able to charge higher prices and impose higher fees.” The implication is simple: the Live Nation/Ticketmaster merger is to blame for the high ticket prices that consumers have been facing particularly over the past several years.

In reality, Live Nation/Ticketmaster is not the cause of high prices. While accounting for 60–70 percent of all tickets sold at large arenas and amphitheaters, the company’s service charges are comparable to, if not lower than, other primary ticketing sites, including SeatGeek and AXS. Moreover, the company’s digital distribution commission rates are also significantly lower than other digital marketplaces at only 5 percent. Accordingly, their net profit margin was only about 1.4 percent in 2023, well at the lower end compared to other S&P 500 companies. Indeed, from 2017 to 2023 average annual promotion profit margins were about negative 5%, with a high of 2.6% in 2018 and 2019, and 1.7% last year. Simply put, these are not the sort of corporate profit levels driving ticket “greedflation.”

As such, policymakers should focus on finding the real ongoing causes of inflation—e.g., examining the impact of supply chain issues on inflation—and address them rather than adopt the neo-Brandeisians knee-jerk reaction of scapegoating large corporations, which will not solve the inflation problem. Instead, it could worsen it. For example, in the 1970s when Federal Reserve Chair Authur Burns advocated for price controls after attributing inflation to the exercise of monopoly power, only to see inflation continue to rise into the double digits by the end of 1973. Moreover, since large firms are more productive given that they can benefit from scale economies, they are also more likely to pass on their cost savings to consumers in the form of lower prices that can ceteris paribus reduce inflation. In a world of inflation that is stressing the finances of many Americans, the neo-Brandeisian program of Big is Bad will only raise prices which, as Professor Hovenkamp has explained, is a policy that “could never win in an electoral market, just as it has never won in traditional markets.”