The Trend of Aggregate Concentration in the United States Problems of Scope and Measurement

Problems of Scope and Measurement I Introduction A sizable literature examining aggregate concentration and describing the potential adverse consequences of increasing aggregate concentration exists.(1) These adverse consequences involve the suspected relationship between increasing concentration and increasing corporate control over economic resources resulting in non-competitive behavior and/or enhanced political power.(2) Caswell (1987) describes the potential for non-competitive behavior in terms of two linkages between aggregate concentration and economic performance. The first link concerns the relationship between aggregate concentration levels and concentration in individual markets. She states: "To the extent that aggregate concentration levels reflect concentration in individual markets, aggregate concentration measures act as an overall proxy for the level of competition in the entire economy."(3) The second link "is through the dynamic impact of the presence of very large, conglomerate firms on market structure." Activities such as reciprocity or mutual forbearance are dangers commonly thought to be associated with conglomerate firms.(4) The relationship between aggregate concentration and political power is that a danger exists that increases in aggregate concentration lead to the control of more resources that might be used to exert undue influence on the political process. The data presented in the literature allows for a number of conclusions to be drawn concerning the trend in aggregate concentration.(5) First, during the 1970s, aggregate concentration in numerous sectors of the economy was either relatively constant (White, 1981) or declining (Shepherd, 1982). Second, Shepherd (1982) asserts that the main reason for declining aggregate concentration in the 1970s was the vigorous antitrust enforcement during this period. Enforcement of antitrust laws is a key element in controlling aggregate concentration since the lack of such enforcement is often cited as a primary underlying cause of increasing aggregate concentration. This is stated explicitly by Mueller (1990). He argues that there "exists a causal relationship between the growing merger-achieved centralization of control over American industry and the competitive structure and behavior found in particular markets."(6) This leads to an obvious question: Given the lack of antitrust activity and the associated merger boom during the 1980s, has aggregate concentration risen? Several recent studies present mixed results. Greer (1988) shows that, for the early 1980s, there is little change in aggregate concentration in manufacturing but an increase in aggregate concentration in commercial banking. Caswell (1987) presents evidence indicating an increase in aggregate concentration in agribusiness between 1976-1986 due to mergers. O'Neill (1991) shows that aggregate concentration has declined slightly in the manufacturing sector during the 1980s. Contributing to the mixed results of these studies is that there is no general agreement as to how aggregate concentration should be assessed. As Caswell (1987) points out, there are two interrelated problems. The first problem concerns the question: What level of the economy should be explored when measuring "aggregate" concentration? In other words, which data should be examined? Often the analysis is limited to the manufacturing sector (as is the case in Shepherd (1982), Attaran and Saghafi (1988), and O'Neill (1991)). Greer (1988) examines what he refers to as "macro aggregation," but his analysis is also limited to data from the manufacturing sector. The second problem concerns the question: What is the proper measure of aggregate concentration? These problems are addressed in more detail in the next section of the paper. This paper expands upon the previous literature in two respects. First, the issue of the appropriate manner of assessing aggregate concentration is dealt with by presenting a broad assortment of data. …