Home / Companies / News /  Snap Fact | Are companies gaining more market power?

Mumbai: Apple’s race to a trillion-dollar market capitalization has again raised concerns about the concentration of wealth and power among a few companies.

A new National Bureau of Economic Research (NBER) working paper by Jan De Loecker of the University of Leuven and Jan Eeckhout of University College suggests that we should be concerned. The researchers analysed the financial statements of 70,000 firms across 134 countries to find that global market power has increased, and significantly so in the West.

To measure market power, the authors used markups—the ratio of price to (marginal) cost of production. A markup of 1 implies products are sold at cost; above 1, firms make a profit. They found, globally, markups have risen from 1.07 in 1980 to 1.59 in 2016.

By global standards, markups at Indian firms were relatively low at 1.32 in 2016, a 0.34 points increase from 1980. Interestingly, most growth occurred post 2010 with markups remaining more or less flat in two decades through 2000.

However, within Asia, the Indian markup increase ranked third ahead of Japan, Indonesia, Thailand, Malaysia and China (where markups actually fell between 1980 and 2016).

However, taken together, Asian markups are still significantly lower than the West (Europe’s markups are 1.64 and the US is 1.78). One explanation for higher markups in the West could be the outsourcing of low-end manufacturing which has left high-end manufacturing with greater monopolistic power in these economies.

Increasing market power of firms can have huge implications on bargaining power of workers and, hence, income inequality. More market power may also stifle innovation and investment. All of these will call for a range of policy responses from taxation to redistribution to antitrust enforcement.

Also read: Global Market Power (bit.ly/2OU1NVS)

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