This presentation by Jonathan Baker, Research Professor of Law at American University Washington College of Law, was made during the discussion “How can competition contribute to fairer societies?” held during the 17th OECD Global Forum on Competition on 29 November 2018. More documents and presentations on this topic can be found at oe.cd/cfs.

1. 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

2. Overview
• Connecting two troubling secular trends
• Growing inequality and growing market power
• Competition policy targeting inequality
• Options for discussion
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3. 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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4. 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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5. 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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6. 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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7. 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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