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Big Business Is Overcharging You Big Business Is Overcharging You $5,000 a Year
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When Thomas Philippon moved to Boston from his native France 20 years ago, he was a graduate student on a budget, and he was happy to discover how cheap American telephone use was. In those days of dial-up internet connections, going online involved long local phone calls that could cost more than $10 apiece in France. In the United States, they were virtually free.When Thomas Philippon moved to Boston from his native France 20 years ago, he was a graduate student on a budget, and he was happy to discover how cheap American telephone use was. In those days of dial-up internet connections, going online involved long local phone calls that could cost more than $10 apiece in France. In the United States, they were virtually free.
Philippon eventually got a Ph.D. in economics at M.I.T. and decided to stay here. He’s now a professor at New York University. And over the years, he has noticed something surprising about his adopted country: Internet usage is no longer a good deal.Philippon eventually got a Ph.D. in economics at M.I.T. and decided to stay here. He’s now a professor at New York University. And over the years, he has noticed something surprising about his adopted country: Internet usage is no longer a good deal.
Today, his parents pay about 90 euros (or $100) a month in the Paris suburbs for a combination of broadband access, cable television and two mobile phones. A similar package in the United States usually costs more than twice as much.Today, his parents pay about 90 euros (or $100) a month in the Paris suburbs for a combination of broadband access, cable television and two mobile phones. A similar package in the United States usually costs more than twice as much.
Figuring out why has become a core part of Philippon’s academic research, and he offers his answer in a fascinating new book, “The Great Reversal: How America Gave Up on Free Markets.” In one industry after another, he writes, a few companies have grown so large that they have the power to keep prices high and wages low. It’s great for those corporations — and bad for almost everyone else.Figuring out why has become a core part of Philippon’s academic research, and he offers his answer in a fascinating new book, “The Great Reversal: How America Gave Up on Free Markets.” In one industry after another, he writes, a few companies have grown so large that they have the power to keep prices high and wages low. It’s great for those corporations — and bad for almost everyone else.
Many Americans have a choice between only two internet providers. The airline industry is dominated by four large carriers. Amazon, Apple, Facebook and Google are growing ever larger. One or two hospital systems control many local markets. Home Depot and Lowe’s have displaced local hardware stores. Regional pharmacy chains like Eckerd and Happy Harry’s have been swallowed by national giants.Many Americans have a choice between only two internet providers. The airline industry is dominated by four large carriers. Amazon, Apple, Facebook and Google are growing ever larger. One or two hospital systems control many local markets. Home Depot and Lowe’s have displaced local hardware stores. Regional pharmacy chains like Eckerd and Happy Harry’s have been swallowed by national giants.
Other researchers have also documented rising corporate concentration. Philippon’s biggest contribution is to explain that it isn’t some natural result of globalization and technological innovation. If it were, the trends would be similar around the world. But they’re not. Big companies have become only slightly larger in Europe this century — rather than much larger, as in the United States.Other researchers have also documented rising corporate concentration. Philippon’s biggest contribution is to explain that it isn’t some natural result of globalization and technological innovation. If it were, the trends would be similar around the world. But they’re not. Big companies have become only slightly larger in Europe this century — rather than much larger, as in the United States.
What explains the difference? Politics.What explains the difference? Politics.
The European economy certainly has its problems, but antitrust policy isn’t one of them. The European Union has kept competition alive by blocking mergers and insisting that established companies make room for new entrants. In telecommunications, smaller companies often have the right to use infrastructure built by the giants. That’s why Philippon’s parents can choose among five internet providers, including a low-cost company that brought down prices for everyone.The European economy certainly has its problems, but antitrust policy isn’t one of them. The European Union has kept competition alive by blocking mergers and insisting that established companies make room for new entrants. In telecommunications, smaller companies often have the right to use infrastructure built by the giants. That’s why Philippon’s parents can choose among five internet providers, including a low-cost company that brought down prices for everyone.
In air travel, European discount carriers like easyJet have received better access to the gate slots they need to operate. The largest four European airlines control only about 40 percent of the market. In the United States, that share is 80 percent, and, as you’d expect, airfares are higher. Even Southwest Airlines has begun to behave less like a low-fare carrier.In air travel, European discount carriers like easyJet have received better access to the gate slots they need to operate. The largest four European airlines control only about 40 percent of the market. In the United States, that share is 80 percent, and, as you’d expect, airfares are higher. Even Southwest Airlines has begun to behave less like a low-fare carrier.
The irony is that Europe is implementing market-based ideas — like telecommunications deregulation and low-cost airlines — that Americans helped pioneer. “E.U. consumers are better off than American consumers today,” Philippon writes, “because the E.U. has adopted the U.S. playbook, which the U.S. itself has abandoned.”The irony is that Europe is implementing market-based ideas — like telecommunications deregulation and low-cost airlines — that Americans helped pioneer. “E.U. consumers are better off than American consumers today,” Philippon writes, “because the E.U. has adopted the U.S. playbook, which the U.S. itself has abandoned.”
The European Union has created an impressively independent competition agency that’s willing to block mergers, like General Electric-Honeywell and Siemens-Alstom. In the United States, the process is more political, and companies spend vastly more money on campaign donations and lobbying. Lobbyists — and, by extension, regulators — justify mergers with dubious theories about money-saving efficiencies. Somehow, though, the efficiencies usually end up raising profits rather than lowering prices.The European Union has created an impressively independent competition agency that’s willing to block mergers, like General Electric-Honeywell and Siemens-Alstom. In the United States, the process is more political, and companies spend vastly more money on campaign donations and lobbying. Lobbyists — and, by extension, regulators — justify mergers with dubious theories about money-saving efficiencies. Somehow, though, the efficiencies usually end up raising profits rather than lowering prices.
Whirlpool’s 2006 purchase of Maytag is a good example. The Justice Department rationalized the deal partly by predicting that foreign appliance makers would keep the combined company from raising prices. But Whirlpool later successfully lobbied for tariffs to keep out foreign rivals. Washers, dryers and dishwashers have all become more expensive.Whirlpool’s 2006 purchase of Maytag is a good example. The Justice Department rationalized the deal partly by predicting that foreign appliance makers would keep the combined company from raising prices. But Whirlpool later successfully lobbied for tariffs to keep out foreign rivals. Washers, dryers and dishwashers have all become more expensive.
The consolidation of corporate America has become severe enough to have macroeconomic effects. Profits have surged, and wages have stagnated. Investment in new factories and products has also stagnated, because many companies don’t need to innovate to keep profits high. Philippon estimates that the new era of oligopoly costs the typical American household more than $5,000 a year.The consolidation of corporate America has become severe enough to have macroeconomic effects. Profits have surged, and wages have stagnated. Investment in new factories and products has also stagnated, because many companies don’t need to innovate to keep profits high. Philippon estimates that the new era of oligopoly costs the typical American household more than $5,000 a year.
It’s a problem that should inspire bipartisan action. Some solutions feel conservative: reducing licensing requirements and other bureaucratic rules that hamper start-ups. Others feel progressive: blocking mergers, splitting up monopolies and forcing big business to share infrastructure.It’s a problem that should inspire bipartisan action. Some solutions feel conservative: reducing licensing requirements and other bureaucratic rules that hamper start-ups. Others feel progressive: blocking mergers, splitting up monopolies and forcing big business to share infrastructure.
There are signs that the politics of antitrust are shifting. Several Republicans, like Senator Josh Hawley, now talk about the issue, and many Democrats — not just Elizabeth Warren and Bernie Sanders, but also Amy Klobuchar — do too.There are signs that the politics of antitrust are shifting. Several Republicans, like Senator Josh Hawley, now talk about the issue, and many Democrats — not just Elizabeth Warren and Bernie Sanders, but also Amy Klobuchar — do too.
But we have a long way to go. Too often, both parties are still confusing the interests of big business with the national interest. And American families are paying the price.But we have a long way to go. Too often, both parties are still confusing the interests of big business with the national interest. And American families are paying the price.
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