Chad Syverson on Keeping Markets Competitive

A lot of research suggests corporate concentration is increasing. Is that bad for competition?

We don’t know. There are cases where increasing concentration can imply a less competitive market. In other cases, it’s the sign of more competition in a market. 

It’s not the concentration that’s the problem, per se, but a company’s use of its dominant position to do things to keep innovation and competitors out of the market. And when there are strong network effects (where the value of a good increases to the user when more people use the product), you can get really concentrated markets. You can get big, and stay big just because you’re big, even if you’re inferior. That’s an additional concern in tech or network markets in general, and that’s a valid worry.

What should policy makers or regulators do, if anything?

There’s the general principle that you can’t unscramble eggs. So, first, scrutinize potential mergers carefully. Pay more attention to the mergers that are currently exempted from reporting. There were entire industries that were basically rolled up under the nose of antitrust regulators, simply because each individual merger was under the reporting threshold. But if you do 100 of those, you’ve had one giant merger. It seems like that’s something they need to have a better handle on. 

They also need to think about the Facebook-WhatsApp issue of buying your competitor when it’s a startup. Yes, you can buy smaller companies because they have important skills or capital that’s easier to acquire than try to build. But you can also do it so that you don’t face competition from them in the future. It’s hard to know which of these is going on, but regulators need to think more about these issues.  

What about after the fact? 

That’s trickier. Some people say you have to leave the eggs, that they’re already scrambled. I don’t think that’s right, but it is a mess, generally, to break up companies. And it’s not like there’s lots of historical examples where things have gone really well. AT&T went OK, and that was a giant breakup. But breaking up companies is the nuclear option. 

Break up Facebook, yay or nay?

I’m not sure. I don’t think so. This doesn’t mean you don’t scrutinize Facebook’s competitive actions, because it could be engaging in noncompetitive behavior, and the law forbids that. But I’m not sure breaking it up is the solution. 

Chad Syverson is the Eli B. and Harriet B. Williams Professor of Economics at Chicago Booth.