Most prescriptions for boosting growth involve macroeconomic policy: increased government spending, for instance, or lower interest rates. But competition policy has the potential to do the same, by tearing down the barriers that keep companies from entering new markets. That would stimulate business investment in the short run, and productivity in the long run.
Boosting competition isn’t easy, though, since every market is unique and some rules can do more harm than good.
In a report released April 15, President Barack Obama’s Council of Economic Adviserscite evidence of anticompetitive market power throughout the U.S. economy. In most industries, the 50 largest companies control more market share in 2012 than they did in 1997. Corporate return on capital significantly exceeds the cost of capital by a large margin. Returns have risen far more for the most profitable companies than the least profitable. In a perfectly competitive market, new capital should flood into those profitable industries, driving down the incumbents’ returns.
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