Benefits of Competition and Indicators of Market Power

Summary

"Benefits of Competition and Indicators of Market Power" is an April 2016 issue brief published by the Council of Economic Advisers (CEA) under the Obama administration. It surveys the economic benefits of competition for consumers, workers, and entrepreneurs, and then presents three sets of indicators suggesting competition may be declining in parts of the U.S. economy: increasing industry concentration, rising returns accruing to a few firms, and lower levels of firm entry and labor market mobility. The brief is not a Georgist document — it is a mainstream policy-institution assessment written by government economists focused on antitrust enforcement and pro-competitive regulation — but its independent documentation of rising concentration and returns dispersion provides official corroboration of the claim that corporate profits increasingly reflect economic rents, a claim central to the wiki's corporate profits increasingly reflect economic rents outcome page.

Core Findings

Rising Industry Concentration

The brief presents Census Bureau data showing that the majority of U.S. industries saw increases in the revenue share earned by the 50 largest firms between 1997 and 2012. Table 1 of the brief documents the largest gains in transportation and warehousing (+11.4 percentage points), retail trade (+11.2 points), and finance and insurance (+9.9 points). The CEA cautions that national-level concentration statistics are "neither a necessary nor sufficient condition to indicate an increase in market power," since antitrust analysis focuses on product-specific markets, but notes that in several industries with disaggregated public data, market-level concentration has also risen — for example, the average Herfindahl-Hirschman Index for hospital markets increased by about 50 percent between the early 1990s and 2006, and the average HHI for wireless providers rose from under 2,500 in 2004 to over 3,000 in 2014.

Rising Returns Dispersion

The brief reports that returns on invested capital for publicly-traded U.S. nonfinancial firms have become increasingly concentrated. The 90th percentile firm sees returns on invested capital more than five times the median, up from a ratio closer to two "just a quarter of a century ago." The CEA frames this as potentially reflecting economic rents — defined as "returns to the factors of production in excess of what would be necessary to keep them in operation" — and notes that the rising spread on return to invested capital relative to Treasury bonds "may suggest" profits exceeding firms' cost of capital.

This finding closely parallels the firm-level ROIC dispersion evidence in Furman & Orszag (2015), which the CEA brief cites in its reference list. Both documents report the same 90th-to-median ratio of approximately five (or more), though the CEA brief presents it more concisely and without Furman and Orszag's caveats about whether dispersion necessarily proves rents.

Declining Business and Labor Dynamism

The brief documents a decades-long decline in firm entry rates since the 1970s, using Census Bureau Business Dynamics Statistics for 1977–2013. While firm exit rates have remained roughly steady, entry rates have fallen, and the decline — once concentrated in selected sectors like retail — spread across all sectors in the 2000s, including information technology. Labor market dynamism has also declined, with the CEA citing non-compete agreements, occupational licensing, and even collusion between firms (as in Silicon Valley "no-poaching" arrangements) as contributing factors.

The CEA's Framing of Rents

The brief defines economic rents in language consistent with the classical tradition:

"returns to the factors of production in excess of what would be necessary to keep them in operation"

This is the same concept the wiki treats under economic rent. The CEA notes that such rents "may divert resources from consumers, distort investment and employment decisions, and encourage firms to engage in wasteful rent-seeking activities" — connecting the rent concept to rent-seeking behavior. However, the brief is careful to note that the links among rising concentration, rising returns, and declining dynamism "are not clear," and that the causal direction could run in multiple directions or reflect some third factor such as innovation in winner-take-all markets.

Causes and Policy Responses

The brief surveys candidate explanations for declining competition, including:

• Scale economies that advantage incumbents over entrants
• Mergers and acquisitions — global M&A surpassed $5 trillion in 2015, with roughly $2.5 trillion in the United States, though the CEA notes merger waves tend to occur when stock valuations are high
• Occupational licensing — the share of workers in occupations requiring a state license grew fivefold over the last half of the 20th century, creating entry barriers
• Regulatory barriers such as certificate-of-need laws for hospitals and restrictions on direct-to-consumer auto sales

The brief then catalogs federal government actions to promote competition, including antitrust enforcement (DOJ and FTC), agency-specific interventions (FAA airport slots, FCC spectrum auctions, net neutrality), and criminal prosecution of collusion. It also identifies emerging areas for future research: big data as a barrier to entry, price transparency, common ownership of stock by institutional investors, and supply chain concentration effects.

Relation to the Georgist Case

The CEA brief's relevance to the Georgist case is indirect but meaningful:

1. Official corroboration of rising rents. As a document produced by the White House's economic advisory body, it provides institutional authority for the claim that corporate profits increasingly reflect economic rents — the same claim documented on the wiki's corporate profits increasingly reflect economic rents outcome page, supported by De Loecker, Eeckhout & Unger, Barkai, and Furman & Orszag. The CEA does not engage with Georgist theory or land taxation, but its independent diagnosis of rising rents from within the policy mainstream strengthens the empirical case.
2. Extension of rent analysis beyond land. The brief's discussion of occupational licensing, regulatory barriers, and network effects as sources of rents parallels the broader modern rent analysis discussed on the wiki's economic rent and rent-seeking pages — the same extension of classical rent theory that Mazzucato, Ryan-Collins & Gouzoulis (2023) treat as the modern frontier of rent analysis.
3. No direct engagement with land or LVT. The brief does not discuss land value taxation, land as a factor of production, or housing rents specifically. Its policy recommendations center on antitrust enforcement and regulatory reform, not tax policy. Readers should not overstate its Georgist relevance — it is a corroboration of the rising-rents diagnosis, not an endorsement of Georgist remedies.

Nuances and Limits

• The brief is a policy document, not a peer-reviewed study. It synthesizes existing research and government data rather than presenting new econometric analysis. Its findings on concentration and returns dispersion are drawn from Census Bureau data and from work by other researchers (including Furman & Orszag 2015, which it cites).
• The CEA explicitly states the causal links are unclear. The brief notes: "the links among these factors are not clear" — rising concentration, rising returns, and declining dynamism could be related in multiple ways, or driven by a common third factor. The CEA does not claim to have established that declining competition is the cause of rising rents.
• National concentration statistics are acknowledged as imperfect proxies. The brief cautions that revenue share at the national level "is neither a necessary nor sufficient condition to indicate an increase in market power," since antitrust analysis operates at the product-market level.
• The returns-dispersion finding is presented without the caveats Furman & Orszag applied. Where Furman and Orszag explicitly noted that rising dispersion "is not, in and of itself, evidence of an increase in rents" (since it could reflect risk premia or noise), the CEA brief presents the same finding more briefly and with less discussion of alternative explanations — though it does use the conditional language that rising returns "may reflect economic rents."
• [VERIFY] The brief was accessed via the Obama White House archive. The URL is stable as of this writing, but archive sites occasionally reorganize; a future editor should confirm continued accessibility.

Bears On

• Outcome: Corporate profits increasingly reflect economic rents — the CEA's documentation of rising concentration, returns dispersion, and declining dynamism provides official institutional corroboration of this outcome, alongside the academic evidence from De Loecker, Eeckhout & Unger, Barkai, and Furman & Orszag.
• Concept: Economic Rent — the brief's definition of rents as returns above what is necessary to keep factors in operation is consistent with the classical rent concept.
• Concept: Rent-Seeking — the brief explicitly connects rents to "wasteful rent-seeking activities" and identifies occupational licensing as a potential rent-seeking mechanism.
• Concept: Superstar Firms — the brief's discussion of winner-take-all markets and network effects relates to the superstar-firms literature (Autor et al. 2020).

See Also

• Corporate profits increasingly reflect economic rents
• Furman & Orszag — A Firm-Level Perspective on the Role of Rents
• De Loecker, Eeckhout & Unger — The Rise of Market Power
• Economic Rent
• Rent-Seeking
• Superstar Firms

Sources

1. Council of Economic Advisers (2016), "Benefits of Competition and Indicators of Market Power," CEA Issue Brief, April 2016. Obama White House Archive — used for all findings, data, and quotations in this article; the full 17-page brief was read directly.
2. Jason Furman & Peter Orszag (2015), "A Firm-Level Perspective on the Role of Rents in the Rise in Inequality." PDF — cited by the CEA brief in its reference list; used here for cross-referencing the ROIC dispersion finding. See this wiki's dedicated page for a full treatment.
3. Jan De Loecker, Jan Eeckhout & Gabriel Unger (2020), "The Rise of Market Power and the Macroeconomic Implications," QJE 135(2). DOI — the leading academic markup study corroborating the CEA's returns-dispersion finding; see this wiki's dedicated page.
4. Simcha Barkai (2020), "Declining Labor and Capital Shares," Journal of Finance 75(5). DOI — used for the pure-profit-share decomposition that complements the CEA's returns evidence; see this wiki's dedicated page.