Day: July 6, 2016

The concentration problem—and particularly the idea of “too big to fail” in the financial sector—gets a lot of attention. But the problem isn’t unique to the financial sector. It’s hiding in plain sight all across the American economy. In the last decade, the number of major U.S. airlines has dropped from nine to four. The four that are left standing—American, Delta, United, and Southwest—control over 80% of all domestic airline seats in the country. And man, are they are hitting the jackpot now. Last year those four big airlines raked in a record $22 billion in profits. Eighteen billion alone came from fees for baggage and legroom and pay toilets. Ok, the last one was a joke, but what have passengers received in return for their higher costs? Fewer flights and worse service. Airline complaints rose 30 percent just from 2014 to 2015. The list goes on. A handful of health insurance giants—including Anthem, Blue Cross Blue Shield, United Healthcare, Aetna, and Cigna—control over 83 percent of the country’s health insurance market. Three drug stores—CVS, Walgreen’s, and Rite Aid—control 99% of the drug stores in the country. Four companies control nearly 85% of the U.S. beef market, and three produce almost half of all chicken. Some people argue that concentration can be good because big profits encourage competitors to get into the game. This is the perfect stand-on-your-head-and-the-world-looks-great argument. It says that there’s no competition today, but maybe there will someday be competition. The truth is pretty basic—markets need competition now. So I want to talk about five reasons to be concerned about the decline of competition.