The Monopolists Are Winning

Visualizing Market Concentration
in the United States

In recent years, large American corporations have been on a buying spree. Amazon bought Whole Foods in 2017. That same year, CVS announced it would acquire the health insurer Aetna. AT&T finally acquired Time Warner in 2018 after a two-year delay. Meanwhile, Silicon Valley's giant technology companies have come to play a dominant role in almost everyone's life. American corporations seem to be bigger and more powerful than ever, and some researchers have begun to worry that a lack of competition is holding back innovation and depressing wages.

Are markets in the United States more concentrated today than they were a decade ago? This is a surprisingly difficult question to answer. Markets change quickly so there is no obvious way to compare markets over time. Some markets around now are entirely new, while others that would have been around ten years ago have disappeared. But we can still get some idea of the general trend by looking at datasets that record the size and dominance of firms over time. There are not many of these datasets, but one good one is the US Census Bureau's Economic Census.

The Census Bureau conducts the Economic Census once every five years. The Economic Census is a survey of nearly four million businesses that is used to calculate all sorts of important statistics such as the GDP and PPI (Producer Price Index). The Economic Census catagorizes all firms according to a scheme known as the North American Industry Classification System (NAICS) . The NAICS is a hierarchical scheme that assigns each firm a code designating the firm's sector, subsector, industry group, and industry. Each firm can only be assigned a single code, meaning that no firm is a member of more than one industry.

The Economic Census asks businesses to report, among other things, the total revenue they receive from sales. The Census Bureau uses these revenue figures to determine which firms constitute the top-four firms in each industry. It then calculates what percentage of the revenue earned by the entire industry is earned by the top-four firms. This gives us a useful indicator for how much the top-four firms dominate their industry. If the top-four firms receive most of the revenue, then we can conclude that the industry is concentrated.

The graph shows 12 NAICS sectors and how concentrated they were in 2002. All of the sectors lie along the diagonal line, since 2002 is our baseline year and the two axes are currently the same. You can see that some sectors earned significantly more revenue than others, as indicated by the area of the circle.

You can hover over a sector to see more details.

The Utilities sector was the most concentrated NAICS sector in 2002, which may not come as a surprise. Within the sector, the top-four firms in each industry earned 47% of the industry's revenue on average. The Utilities sector includes firms involved in power generation, natural gas distribution, water suppy, and sewage treatment.

The Information sector was the second-most concentrated NAICS sector. Within the sector, the top-four firms in each industry earned 46% of the industry's revenue on average. The Information sector includes many tech firms but also newspaper publishers, cable providers, internet service providers, and television broadcasters.

Between 2002 and 2007, concentration grew slightly in most of the NAICS sectors. The Information sector overtook the Utilities sector to become the most concentrated sector. The Finance and Insurance sector experienced the most concentration growth: It went from a 38% concentration level to a 43% concentration level over the five years.

All of the sectors also experienced growth in overall industry revenue between 2002 and 2007.

Between 2007 and 2012, concentration again grew slightly in most of the NAICS sectors. The Utilities sector reclaimed its position as the most concentrated sector.

Over the decade between 2002 and 2012, we can see that, while concentration mostly increased across the board, the increase was small. In order to see more drastic changes, we need to drill down to the industry level.

We are now looking at the individual NAICS industries within all of our sectors.

In 2002, the top-four firms in the mean industry earned 25.6% of the revenue within the industry. But among industries there is much more variation than among sectors—you can see that in some industries the top-four firms earned over 80% of industry revenue.

By 2007, the top-four firms in the mean industry earned 26.8% of industry revenue. So on average the growth in concentration was small. But in some industries concentration increased dramatically.

The travel agency industry, for example, experienced a huge amount of concentration growth. The top-four firms controlled 49% of revenues in 2002, more than double the amount of revenue that they controlled in 2002.

Another five years later, in 2012, the top-four firms in the mean industry controlled 27.3% of industry revenue. So while the increase was again modest on average, some industries experienced enormous consolidation.

Here we can see that the pension fund industry grew much more concentrated over the ten years between 2002 and 2012. In 2002, the top-four firms in this industry controlled only 14.2% of industry revenue.

Many industries have become less concentrated since 2002. But of the 369 industries displayed here, 228, or 62%, grew more concentrated over the decade.

So there has been a small rise in concentration across the board. But maybe the real danger is that there are particular industries where concentration has been allowed to rise by so much. In either case, the Economic Census data suggests that we ought to start thinking carefully about how to preserve competition between businesses in the United States.