Market Power and Inequality: How Big Should Antitrust’s Role Be in Reducing Inequality?

Lina Khan's upcoming paper on the role of antitrust law on reducing inequality was covered by the University of Chicago's ProMarket:

A forthcoming paper by Lina Khan from Yale Law School, and Sandeep Vaheesan, regulations counsel at the Consumer Financial Protection Bureau and former special counsel at the American Antitrust Institute, however, makes the case for a more rigorous antitrust regime as one possible remedy (among others) for the rise in inequality6). “Our argument is not that addressing inequality should be an explicit goal of antitrust, but that the enfeebling of antitrust has contributed to inequality, and that one effect of reinvigorating antitrust may be to mitigate that inequality,” says Khan.

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Market power, Khan and Vaheesan write, is an important and “significantly underappreciated” contributor to economic inequality in the United States. “Businesses have used a variety of methods—including collusion, mergers, and exclusion—that are, at best, policed imperfectly, to extract greater wealth from the public than would be possible were the markets that they dominate more competitive,” they write.

Among other things, they argue, concentration enables wealth transfers from consumers, workers, and entrepreneurs to corporate executives and shareholders. Market power, they write “can be a powerful mechanism for transferring wealth from the many among the working and middle classes to the few belonging to the 1 and 0.1 percent at the top of the income and wealth distribution.” Market power translates into political power, enabling monopolistic and oligopolistic companies to use their economic power to “push for laws and regulation that further entrench their position, enhance their clout, and transfer wealth upwards.”

“We’re not arguing that this connection is simplistic or very linear, or that market power is the sole reason for inequality,” says Khan, a fellow with the Open Markets Program at New America. “Declining market competition and weak antitrust is likely one contributing factor to inequality, and wealth transfers from consumers to investors is one face of that dynamic. But the effect extreme market concentration and lack of competition have on wages and entrepreneurship are equally important, and far less studied.”