COMPETITION POLICY, MARKET
POWER, AND INEQUALITY
Jonathan B. Baker
American University Washington College of Law
OECD Global Forum on Competition
Discussion on Competition and Fair Societies
November 29, 2018

Overview
• Connecting two troubling secular trends
• Growing inequality and growing market power
• Competition policy targeting inequality
• Options for discussion
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Growing Inequality and Market Power:
Social and Economic Costs
• Growing inequality
• Reduces economic growth
• Tilts public policy to favor the interests of the wealthy
• Undermines legitimacy of the social order
• Objectionably morally
• Growing market power
• Harms in affected markets
• Wealth transfers
• Allocative efficiency losses
• Wasteful rent seeking
• Slowed innovation and productivity improvements
• Economy-wide harms
• Slowed economic growth
• Increased inequality
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Connecting the Trends: Market Power
Increases Inequality
• Producer surplus from market power accrues primarily to
top executives & shareholders
• In US: top 1% (in wealth) hold 50% of stock & mutual fund assets
• Top 10% hold 91% (81% accounting for retirement plan ownership)
• Decline of private sector unions in the US limits the extent to which
workers can appropriate market power rents
• Market power plausibly accounts for 10-25% of the wealth
of the richest 10% of the population in OECD countries
• Ennis & Kim (2016); Ennis, Gonzaga & Pike (2017)
• Piketty: return to capital > economy’s growth rate
• Piketty terms this divergence an “amplifier” for wealth inequality, for
a given variance of other shocks
• Market power increases the divergence
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Market Power and Inequality: Further
Comments
• Market power contributes to inequality regardless of
whether it is “legitimate” in current antitrust terms
• Inequality is not just about market power
• Many other factors also contribute to growing inequality
• Some inequality is inevitable, though all do not necessarily benefit
• Possible feedback in the other direction
• If inequality tilts public policy, it could foster policies that protect or
enhance market power
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Competition policy targeting inequality:
options for discussion
• Strengthen competition enforcement overall
• Increase competition agency budgets
• Strengthen antitrust rules and enforcement to increase deterrence of
anticompetitive conduct
• Target inequality in the exercise of enforcement agency discretion
• Prioritize cases where enforcement benefits the less advantaged and middle
class
• Including monopsony power exercised against workers and small businesses
• Design remedies to benefit less advantaged victims
• Recalibrate competition policy goals
• Seek to prevent welfare losses to trading partners resulting from lessened
rivalry, ignoring gains and losses to defendants
• Recognize excessive pricing by dominant firms as an antitrust offense
• Adopt reduction of inequality as an explicit competition policy goal
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References
• Jonathan B. Baker, The Antitrust Paradigm: Restoring a Competitive
Economy
• forthcoming in 2019 from Harvard University Press
• http://www.hup.harvard.edu/catalog.php?isbn=9780674975781
• Jonathan B. Baker and Steven C. Salop, “Antitrust, Competition
Policy and Inequality”
• The Georgetown Law Journal Online, vol. 104, 2015, pp. 1-28
• reprinted in translation in Mercato Concorrenza Regole, no. 1, 2016, pp. 7-34
• Sean F. Ennis and Yunhee Kim, “Market Power and Wealth
Distribution”
• OECD and World Bank Group, A Step Ahead: Competition Policy for Shared
Prosperity and Inclusive Growth, 2017, pp. 133–154.
• Sean F. Ennis, Pedro Gonzaga, and Chris Pike, “Inequality: A Hidden
Source of Market Power”
• OECD, 2017, https://ssrn.com/abstract=2942791
• Harry First and Eleanor M. Fox, “Philadelphia National Bank,
Globalization, and the Public Interest”
• Antitrust Law Journal, vol. 80, no. 2, 2016, pp. 307–351.
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