The need for a competitive marketplace

For the first time since the 1970s, everyone seems to be talking about inflation. And no wonder. In December, the consumer price index jumped an eye-popping 7 percent year-on-year, continuing an unrelenting and accelerating rise since last spring. Americans under 40 have never lived through inflation like this, and as wage increases fail to keep up with rising prices, many families are nervously trying to balance strained budgets.

The causes of the current inflation spike are complex and numerous—the tremendous and poorly targeted government stimulus disbursed during the pandemic, supply chain crunches on imports, and a tight labor market as many workers rethink their careers in the wake of the pandemic. One factor, however, that is not getting the attention it deserves is monopoly.

Consider: According to those supply-and-demand charts you studied in Econ 101, a healthy economy should have a built-in release valve to temper price rises: competition. As costs of labor and supplies rise, businesses will seek to raise prices on consumers. In response, however, some businesses will seize the opportunity to gain market share, keeping their prices a bit lower and accepting lower profits. Thus, during inflationary times, we should expect diminishing corporate profits, as companies raise their prices a bit more slowly than their costs. Stock prices might suffer, but consumers might benefit. In many industries, though, the opposite is happening.

Corporate profits over the past year have surged around 20 percent, with businesses as diverse as Procter & Gamble, Coca-Cola, Amazon, and Verizon reporting their highest profit margins in decades. (During the 1970s inflationary period, in contrast, real corporate profits increased by less than 2 percent per year.) Why might this be? The culprit some economists have pointed to is monopoly pricing power, a diagnosis enthusiastically echoed by investors eager to profit at consumers’ expense. No wonder the stock market surged throughout 2021!

The idea here is straightforward. In a competitive market, some businesses will try to underprice their rival. Absent such competition, there is little incentive to slow price rises. Some businesses with monopoly pricing power will use the excuse of inflation to raise prices even faster than rising costs would indicate. If consumers know fuel costs are rising, but don’t know quite how much, a monopolistic company might use a 6 percent rise in transportation costs to justify an 8 percent price hike, padding profits by 2 percent. There is growing evidence that this is happening throughout our economy.

To be sure, few industries are under a pure monopoly, but in many, one or two companies so dominate the market that they can effectively set prices. Amazon accounts for more than 40 percent of everything sold on the internet. Three companies control almost the entire rental car industry in the United States. Intel supplies around 95 percent of microprocessors. And when is the last time you went into a drug store that wasn’t a CVS or Walgreens? The consolidation of American business has reached breathtaking proportions, rivaling or exceeding the age of the “robber barons” that prompted modern-day antitrust legislation.

If anyone should be sounding the alarm about this, it should be conservatives, with our commitment to free-market competition. To be sure, if one firm achieves a dominant position in its industry, this may be because a superior business model enables it to supply better goods at lower prices than its competitors, driving them out of business. But once it does so, it may have sufficient power to keep them out of business while steadily raising prices. There is no easy solution to this dilemma—allowing businesses to reap the rewards of success but without stifling future competition—but it is a problem that should be at the top of the agenda for Republicans and Democrats alike.

As we have seen with the rise of Big Tech, monopoly isn’t just bad for consumers, it’s bad for citizens as well. Economically dominant firms (Apple and Amazon, after all, each have budgets considerably larger than the state of California) can flex their muscles to dominate the moral or political discussion as well, redefining perversion as a “lifestyle choice” or election integrity as racism.

A handful of conservative lawmakers and think tanks have begun sounding the alarm and calling for renewed antitrust enforcement that will reestablish a competitive marketplace, but for many on the right, accustomed to defining themselves as “pro-business,” these warnings have fallen on deaf ears. It is high time, with both inflation and censorship on the rise, to give serious attention and thoughtful debate to the unprecedented concentration of power in some of America’s largest corporations.