Market concentration is a longstanding problem, yet we’ve had close to no inflation for two decades

Is ‘Greedflation’ Rewriting Economics, or Do Old Rules Still Apply?Economists and politicians are debating whether monopolistic companies are fueling inflation in ways that confound longstanding theory by Lydia DePillis of The New York Times. Excerpts:

"“Market concentration is a longstanding problem, yet we’ve had close to no inflation for two decades,” said David Autor, an economics professor at the Massachusetts Institute of Technology. “So it cannot be that market concentration suddenly explains inflation.”

In addition, most research on how market concentration affects companies’ “pass through” of suddenly higher costs has found that fiercely competitive industries raise prices more than those that are dominated by only a few companies, because they have thin margins and would lose money if they didn’t. That’s one consequence of oligopolists’ pricing power: They can give up some profits when they choose to."

"The relationship of profits, inflation and market power will be tough for economists to nail down. High-quality government data will take time to produce. Moreover, it requires a melding of micro- and macroeconomic disciplines that haven’t had to synthesize so many factors simultaneously, with little historical precedent."

the field of industrial organization hasn’t agreed on a reliable gauge for industries’ competitiveness. Even measuring profit margins, especially for particular goods, isn’t foolproof.

"In late May, economists at the Federal Reserve Bank of Boston released a preliminary paper finding that even before the pandemic, more concentrated industries were able to pass along a higher share of their own cost increases. But critics pointed out that it counted only public companies and omitted the retail sector, which would probably play an important role.

As more evidence accumulates, we might find that the pandemic affected various industries in different ways, even across disparate geographies. Jan De Loecker, a professor at KU Leuven in Belgium who was a co-author of a seminal paper on the pernicious effects of rising market concentration, doubts that concentration worsens price increases across the board."