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FORTUNE.COM // JUNE.1.19
46.9% last year, 43.7%
15 years ago, and 41% in
1995.
It’s quite possible that
next year they’ll account
for a solid half, given
recent developments in
this land of giants: CVS
Health, the drugstore
chain–cum–pharmacy
benefits manager (No. 8
this year), late last year
gobbled up Aetna, which
as one of America’s
largest insurers ranked
No. 49 on the For-
tune 500 in 2018.
AT&T (No. 9), mean-
while, swallowed up
Time Warner, a $31.3 bil-
lion morsel from the
entertainment industry
(HBO, Turner Broad-
casting, Warner Bros.)
that ranked No. 98 last
year. And Marathon
Petroleum (No. 31)
scooped up Andeavor, a
Fortune 100 oil refinery.
Is this the natural
evolution of an economy
in which innovation and
business acumen are
duly rewarded? Or are
there more worrisome
forces afoot?
Economists cite vary-
ing reasons for increas-
ing industry concentra-
tion—the extent to which
industries are dominated
by a few large firms—but
agree it’s on the rise.
(One need not be an
economist to notice:
Your Rite Aid is now a
Walgreens; you can no
longer fly US Air or Con-
tinental; you buy almost
everything—including
your Whole Foods gro-
ceries—from Amazon.)
“It’s unmistakable that
concentration has been
growing at a national
level,” says James Bessen,
an economist at Boston
University whose re-
search has looked at why
the top tier of companies
is pulling ahead of the
pack. Bessen points to
the role of information
technology. Firms that
have invested most heav-
ily in proprietary soft-
ware (incidentally, often
the biggest firms) have
emerged as clear winners
in the current economy,
experiencing productiv-
ity, sales, and labor force
gains, he says.
Fiona Scott Morton,
an economics professor
at Yale who once worked
in the Department
of Justice’s antitrust
division, homes in on
the role of data, which
she says “has a natural
concentrating” effect.
Data-rich companies can
achieve economies of
scale cheaply and further
benefit from feedback
and network effects—the
more data you have, the
better and more attrac-tive to customers your
product becomes, she
explains.
As technology and
data have reshaped the
economy, she and oth-
ers argue that antitrust
enforcement—which
may have blocked merg-
ers of big players and
helped spur innovation
in the past—has all but
disappeared. “We’ve
been walking back-
wards at least 40 years,
at the same time that
there’s been this spring-
ing forward.”
Meanwhile, anti-
competitive practices
protecting the position
of the largest firms
have proliferated, adds
Herbert Hovenkamp,
a law professor and
antitrust expert at the
University of Pennsyl-
vania. He points to the
conduct of large firms
that force employees
into noncompete agree-
ments, which effectively
suppress wages by mak-
ing it difficult for even
rank-and-file workers
to change jobs. He alsosingles out the tendency
of Big Tech to buy up
potential competitors as
soon they come along:
like Amazon snapping
up Quidsi, the parent of
Diapers.com, in 2010.
“These startups are
acquired before they can
ever emerge as vibrant
competitors themselves.”
Should we be con-
cerned about all this?
Economists warn there
are significant costs to a
top-heavy economy, in
which the lion’s share of
financial resources are
concentrated into the
coffers of a relative few:
lower output, higher
prices, reduced choice,
and stifled innovation.
Plus, that economic
might often translates
into political power that
can enable the leaders
to entrench themselves
even further.
That the biggest
corporate giants keep
getting bigger has drawn
notice, inspiring a bur-
geoning anti-monopoly
movement. Much of
the attention is focused
on Big Tech; everyone
from Elizabeth Warren
to Facebook cofounder
Chris Hughes has called
for the breakup of
Facebook this year. But
the book might not be
closed on CVS either: In
April, months after the
government approved
its merger with Aetna, a
federal judge ruled that
he wanted to hear from
parties that opposed it.
“This is a matter of great
consequence to a lot of
people,” he said.