Are anti-competitive firms killing American innovation?

WHEN THOMAS PHILIPPON moved from France to America in 1999 to begin a PhD in economics, he found a consumer paradise. Domestic flights were dazzlingly cheap. Household electronics were a relative bargain. In the days of dial-up modems Americans, who were charged a flat rate for local calls, paid far less than Europeans to get online. But over the past two decades, Mr Philippon writes in “The Great Reversal”, this paradise has been lost. Europeans now enjoy cheap cross-continent flights, high-street banking, and phone and internet services; Americans are often at the mercy of indifferent corporate giants. Perking up their economy might mean cutting those giants down to size.

Much that has happened to the American economy since the 1990s has not been to the typical worker’s advantage. Growth in output, wages and productivity has slowed. Inequality has risen, as have the market share and profitability of the most dominant firms. Economics journals are packed with papers on these trends, many of which argue that the dominance of big firms bears some blame for other ills. Between 1987 and 2016 the share of employment accounted for by firms with over 5,000 employees rose from 28% to 34%. Between 1997 and 2012, this newspaper reported in 2016, the average share of revenues accounted for by the top four firms in each of 900 economic sectors grew from 26% to 32%.