The Great Reversal: How America Gave Up on Free Markets

Summary

The Great Reversal: How America Gave Up on Free Markets (2019) is a book by Thomas Philippon, the Max L. Heine Professor of Finance at NYU's Stern School of Business, published by Belknap Press of Harvard University Press. Philippon is a mainstream macro-finance economist — not a Georgist or heterodox writer — whose research spans corporate finance, macroeconomics, and political economy; the book condenses roughly a decade of his own peer-reviewed research (much of it with co-authors such as Germán Gutiérrez) into a single argument aimed at a broader audience. The book is organized in four parts: the rise of market power in the United States, the contrasting European experience, the political economy of lobbying and antitrust, and detailed case studies of individual industries (airlines, banking, telecoms, and others). Because Philippon is a card-carrying mainstream economist making an empirical, institution-focused argument — not a claim about land specifically — the book functions on this wiki as a modern, generalized instance of the classical Georgist concern: that a growing share of income can be captured through positional or legally-protected advantage rather than production, echoing the land case while extending it into corporate market structure.

The Core Argument and Findings

Philippon's central empirical claim is that the intensity of product-market competition in the United States declined broadly across industries from roughly 2000 onward, reversing a historical pattern in which the US was generally more competitive than Europe. He marshals several independent strands of evidence for this:

• Concentration. Using standard concentration measures (four/eight-firm concentration ratios and Herfindahl-Hirschman Index estimates) across a wide range of US industries, Philippon reports that most sectors show rising concentration since the late 1990s/early 2000s, with fewer, larger incumbents commanding a growing share of sales, alongside declining rates of new firm entry [VERIFY: precise concentration figures and industry counts are drawn from secondary summaries and reviews of the book (Cato Institute, NBER Reporter) rather than a direct read of the primary chapters/data appendix; a future editor with access to the book's tables should confirm exact figures before quoting specific percentages].
• The "failure of free entry." Philippon documents that the historical positive correlation between an industry's profitability (proxied by Tobin's q) and subsequent new-firm entry — the mechanism by which competitive markets are supposed to compete away excess profit — weakened sharply after roughly 2000, suggesting that something is now blocking the normal competitive correction of high profits into new entry (Chapter 5, "The Failure of Free Entry").
• Profits and reinvestment. He reports that US corporate after-tax profits rose from an average of roughly 7% of value added (1970–2002) to roughly 10% (post-2002), while the share of profit reinvested in the business fell from roughly 30 cents to roughly 20 cents per profit dollar over a comparable period [VERIFY: figures reported via NBER Reporter's summary of the book's research programme rather than independently confirmed against the book's own tables].
• Prices. Philippon presents comparative US-Europe price evidence — most prominently that American consumers pay roughly twice as much as consumers in France or Germany for comparable fixed broadband and wireless service — and that average US prices across a basket of goods rose around 15% more than European prices between 2000 and 2017, changes he attributes to weaker US competitive discipline rather than to cost differences.
• Industry case studies. Detailed chapters trace this pattern through specific sectors: US airline consolidation (the Delta–Northwest, United–Continental, Southwest–AirTran, and American–US Airways mergers of 2008–2014) raised concentration and fares even as European low-cost carriers expanded competition and lowered fares over the same period; US banking concentration and fees are examined similarly.
• The lobbying and regulatory-capture mechanism. The book's political-economy section argues the underlying cause is not fixed technological destiny but policy choice, driven by corporate lobbying and campaign contributions that shape antitrust enforcement, sector-specific regulation, patents, and occupational licensing in incumbents' favor. Philippon uses "RegData" text-analysis measures of regulatory language (e.g., the density of mandatory terms like "shall" and "must" in the Code of Federal Regulations) and finds that industries with larger increases in lobbying spending show correspondingly larger declines in new-firm entry and steeper rises in concentration — his central causal claim that regulatory barriers, erected and defended through lobbying, are why US markets stopped self-correcting toward competition. He frames this through a public-choice logic: the benefits of preserving competition are dispersed across all consumers and potential entrants, while the benefits of restricting it are concentrated among a few incumbent firms, giving incumbents a much stronger incentive to organize and lobby than their dispersed opponents have to resist.
• The US-Europe reversal. Philippon's most attention-getting claim is that, on this evidence, the US — long assumed the world's most competitive large economy — became less competitive than the EU in many product markets over this period, a reversal he attributes to Europe's more independent, rules-based competition authority (DG Competition) as against a US antitrust apparatus he views as more politically capturable.

Relation to the Georgist Case

Georgist analysis holds that a persistent, growing share of income in market economies is economic rent — payment in excess of what is required to bring a factor into its current use — and traces this classically to the fixed supply of land. Philippon's book matters for that case without making a land argument at all: it documents, using mainstream industrial-organization and public-finance methods, that concentrated corporate power protected by regulatory and lobbying barriers can generate the same structural pattern Georgists attribute to land monopoly — a wedge between price and the competitive (marginal-cost) return, captured by incumbents rather than competed away, and defended through political rather than productive effort. This is a modern instance of rent-seeking in the classical Tullock/ Krueger sense: firms spending resources on lobbying and regulatory capture to preserve a distributional advantage rather than to create value, precisely the behavior Rent-Seeking describes as rooted in — but not limited to — the analysis of land rent.

The book strengthens the broader case made on The Rentier Economy narrative page that a growing share of national income rewards extraction rather than production, by supplying an institutional, policy-focused mechanism — regulatory capture via lobbying — alongside the markup evidence already assembled from De Loecker, Eeckhout & Unger (2020). Where De Loecker, Eeckhout & Unger document the pattern of rising markups without adjudicating its cause, Philippon supplies one specific causal story for at least part of that pattern: lax and capturable antitrust enforcement plus barrier- erecting regulation, rather than technology-driven efficiency gains. His account sits in explicit tension with Autor, Dorn, Katz, Patterson & Van Reenen's superstar-firms account, which reads a structurally similar concentration pattern substantially as legitimate technology-driven productivity divergence rather than rent extraction through political capture — the same underlying "efficiency versus rent" fault line that runs through this entire literature.

Prose note on outcomes: this book's headline claim — that corporate concentration, lobbying, and regulatory barriers have raised prices and profits at consumers' and the broader economy's expense — bears directly on a proposed wiki outcome page on rising corporate rents (something like "corporate profits are increasingly rents"), which does not yet exist in this wiki as of this writing. Once such a page is created, Philippon's book (alongside De Loecker-Eeckhout-Unger) should be one of its primary supporting sources; no supports_outcomes link is made here because the target page does not exist yet.

Nuances and Limits

The book's reception among economists has been broadly positive but includes substantive, specific methodological pushback that this page should represent honestly rather than treat the book's headline claims as settled.

• The HHI-reliability critique (Eeckhout, 2021). In a Journal of Economic Literature review, Jan Eeckhout — co-author of the De Loecker-Eeckhout-Unger markups paper — argues the book's central empirical strategy relies too heavily on concentration ratios (the Herfindahl-Hirschman Index) as a proxy for market power, which he calls theoretically unreliable: in some standard competition models (e.g., Melitz-type monopolistic-competition models) more market power can produce lower, not higher, measured concentration, so a rising HHI does not unambiguously imply rising market power, and the relationship runs in the opposite direction in some settings. Eeckhout further argues market definition (geographic and product scope) is usually unobserved and changes over time in ways that can mechanically move HHI regardless of true competitive conditions, and that markup- and profitability-based measures (the approach of his own paper with De Loecker and Unger) are more reliable than concentration ratios. He credits Philippon with being aware of this limitation (quoting the book's own acknowledgment, at p. 35, that "concentration alone is not a reliable indicator of competition") but argues the book's regression evidence connecting concentration to productivity and investment outcomes does not, on Eeckhout's reading, actually establish the causal claims Philippon draws from it.
• Disputed US-Europe divergence. Eeckhout's review also directly disputes what he calls the book's "most mediagenic" claim — that the US became less competitive than the EU — arguing that once measured with markups and profitability rather than concentration ratios, the evidence for a genuine US-Europe divergence in the evolution of market power is much weaker than the book suggests, and that similar patterns of rising market power appear on both sides of the Atlantic when measured this way.
• Technological change as an underweighted alternative explanation. Eeckhout argues the book gives disproportionate attention to antitrust and lobbying as causes of rising market power, relative to technological change (network effects, scale economies in digital markets), which he and co-authors argue is at least as important a driver — and one with different, more ambiguous welfare implications than pure regulatory capture, since technology-driven concentration can reflect genuine efficiency gains passed only partly to consumers, not pure rent extraction.
• The Austrian/Public Choice critique (Rouanet, 2022). In a review essay in The Review of Austrian Economics ("Competition is (still) a tough weed"), Louis Rouanet argues Philippon's framework treats competition too narrowly as a static, price-based concept rather than as an open-ended rivalrous process, and that the underlying empirical evidence for a rise in market power is more ambiguous than the book presents — echoing broader Austrian skepticism (also voiced in a Mises Institute review) about whether concentration and markup measures reliably capture contestability. Rouanet situates the book's method as inheriting weaknesses of the older "structure-conduct-performance" paradigm that mainstream industrial organization economists substantially abandoned in the 1980s.
• A more classical-liberal counter-reading (Cato Institute, Lemieux 2020). Pierre Lemieux's review for Regulation magazine largely accepts the book's data on lobbying, regulatory language, and price gaps, but criticizes Philippon's proposed remedy — more assertive antitrust enforcement and regulatory reform led by government — as adopting what Lemieux calls an "Adam Smith's man of system" top-down posture, arguing the more consistent response to a story about lobbying-driven regulatory capture is to reduce the discretionary regulatory power that makes lobbying profitable in the first place, rather than expand government's remit to fix the market power that government's own capturable rules helped create.
• What the book does not show. The book does not attempt to measure or attribute any of the rents it documents to land specifically — it is a general study of product-market competition, not a real-estate or land-value analysis, and Philippon does not connect his findings to location rent or land value taxation. Its evidence is also concentrated on the period from roughly 2000 to the mid-2010s; more recent developments in digital-platform concentration are addressed only partially. Readers should also note the book was written for an academic-adjacent audience — even sympathetic reviewers (Eeckhout) describe it as more encyclopedic and research-compendium-like than a popular-audience narrative comparable to Piketty's Capital in the Twenty-First Century.

Bears On

• Rent-Seeking — the book's lobbying-and-regulatory-capture mechanism is a detailed, book-length case study of rent-seeking behavior in the classical Tullock/Krueger sense, generalized from land to regulatory and antitrust advantage.
• Economic Rent — the price-cost and profit-margin gaps Philippon documents are, in substance, a form of economic rent captured through market structure rather than production, though the book itself does not use this vocabulary.
• Superstar Firms and Autor, Dorn, Katz, Patterson & Van Reenen (2020) — the book's "lobbying and regulatory capture" causal story is a direct rival to the superstar-firms account's "legitimate technology-driven scale economies" reading of a structurally similar concentration pattern; the two should be read together as competing explanations, not treated as settled.
• De Loecker, Eeckhout & Unger (2020) — markups — a close empirical cousin documenting the same broad rise in market power using firm-level markup data rather than concentration ratios; Eeckhout's own review of Philippon's book argues his markup-based approach is more reliable than Philippon's concentration-based one.
• Narrative: The Rentier Economy — this book is a natural addition to that narrative's "research that supports it" section as a non-land, institutionally- grounded instance of rising rent capture via regulatory and political barriers, alongside a fair statement of the HHI-reliability and technological-change critiques.
• (Once created) a proposed outcome page on rising corporate rents (e.g., something like "corporate profits are increasingly rents") would be a natural home for this book's headline claim as supporting evidence, alongside De Loecker-Eeckhout-Unger; no such page currently exists in the wiki, so no supports_outcomes link is made here.

See Also

• Economic Rent
• Rent-Seeking
• Superstar Firms
• De Loecker, Eeckhout & Unger — The Rise of Market Power and the Macroeconomic Implications
• Autor, Dorn, Katz, Patterson & Van Reenen — The Fall of the Labor Share and the Rise of Superstar Firms
• Narrative: The Rentier Economy

Sources

1. Thomas Philippon (2019), The Great Reversal: How America Gave Up on Free Markets, Belknap Press of Harvard University Press. Harvard University Press — used for the book's overall thesis, structure, and publication details.
2. Jan Eeckhout (2021), "Book Review: The Great Reversal, by Thomas Philippon," Journal of Economic Literature 59(4), 1340–1360. AEA · author-hosted PDF (CREI) — used for the summary of the book's three-part thesis, the HHI-reliability critique, the disputed US-Europe divergence claim, the technological-change counter-explanation, and the assessment of the book's style and audience (directly fetched and read this session).
3. Louis Rouanet (2022), "Competition is (still) a tough weed: A review essay of Thomas Philippon's The Great Reversal: How America Gave Up on Free Markets," The Review of Austrian Economics 35(1). Springer — used for the Austrian/public-choice critique of the book's competition framework and its parallels to the older structure-conduct-performance paradigm (summarized from search-engine description of the published review; full text not directly fetched this session).
4. Pierre Lemieux (2020), "The Great Reversal," Regulation (Cato Institute), Summer 2020. Cato Institute — used for the comparative US-Europe price figures (broadband, average prices), the lobbying-expenditure example, the RegData methodology description, and the classical-liberal critique of Philippon's proposed remedy (directly fetched and read this session).
5. NBER Reporter (2019), "The Economics and Politics of Market Concentration," summary of Thomas Philippon's research program. NBER — used for the profit-share and reinvestment-rate figures, the "failure of free entry" mechanism, and the airline-merger and telecom price-comparison case studies (directly fetched and read this session) [VERIFY: these figures should be cross-checked against the book's own tables/appendix where a future editor has direct access to the text, as this session relied on NBER's secondary summary of Philippon's research rather than the book itself].
6. Mises Institute, review of The Great Reversal in the Quarterly Journal of Austrian Economics. Mises Institute — used to corroborate the existence of an Austrian-school critical reception distinct from Rouanet's (not independently read in full this session; cited for corroboration only).

[CITATION NEEDED: a directly fetched/verified copy of the book's own text (chapters 4–5 on concentration and free entry, and the political-economy chapters on lobbying) — this session's web access could not retrieve the primary book text or its data appendix directly; the findings above are drawn from the book's publisher description together with two independently-read academic reviews (Eeckhout 2021, Lemieux 2020) that agree on the book's substance, plus a secondary NBER summary of Philippon's underlying research program. A future editor with direct access to the book should confirm exact figures (concentration ratios, HHI levels, exact price-gap percentages, profit-share numbers) and add page-level citations.]