The rise of corporate market power is receiving increasing attention in research and public discourse—including the current U.S. presidential election debate—with good reason. The IMF’s April 2019 World Economic Outlook (WEO) has a chapter on the topic, which I had the opportunity to discuss at a recent conference.

Increased interest in market power is motivated by some mega trends or puzzles. The “productivity puzzle”: Productivity growth has slowed even as new technologies, led by the digital revolution, have boomed. The “investment puzzle”: Investment has slowed even as the cost of borrowing has been low and corporate profits high. Sluggish productivity and investment have contributed to slower economic growth. Income and wealth inequalities have risen, sharply in some countries, such as the U.S. Income has shifted from labor to capital, and the distribution of both labor and capital income has become more unequal. Wealth has soared, even though investment in productive capital has slowed. These trends have stoked social discontent and political tumult.

What explains these puzzles and trends? One factor identified in recent research and publicly debated as having contributed importantly to these outcomes is a shift toward more monopolistic structures with rising market power, declining competition, and increasing economic rents. To illustrate, for the U.S., David Autor and others find that market concentration has increased in most sectors and industries. Jan De Loecker and others estimate that markups over marginal cost for U.S. publicly traded firms have nearly tripled since the 1980s, with the rise concentrated in high-markup firms gaining market share. Gauti Eggertsson and others find that, in the U.S. over the same period, rents (profits in excess of those under competitive market conditions) rose from 3 percent to 17 percent of total income. Mordecai Kurz estimates, for roughly the same period, that as monopoly profits boosted the market value of corporate stocks and produced outsize capital gains, the share of total U.S. stock market value reflecting monopoly power (what he terms “monopoly wealth”) rose from negligible levels to around 80 percent.

Noted economists have headlined this topic. Here are titles of some recent articles: Paul Krugman’s “Monopoly Capitalism is Killing US Economy,” Joseph Stiglitz’s “America Has a Monopoly Problem—and It’s Huge,” and Kenneth Rogoff’s “Big Tech is a Big Problem.” Terms such as “A New Gilded Age” or “A New Robber Baron Era” have been used to describe our time. There has been a spate of books recently on what is seen as a growing crisis of capitalism arising in no small part from less competitive markets: for example, the bestseller published earlier this year by Jonathan Tepper entitled “The Myth of Capitalism: Monopolies and the Death of Competition.”

The IMF WEO chapter finds that there has indeed been a rise in market power but its findings seem relatively mild when compared to this strong crescendo of concern. First, the chapter finds that market power has increased but only “moderately.” Second, it finds that the rise in market power is explained mainly by dominant firms’ superior performance in largely competitive markets, not unfair advantages from increasing barriers to competition. Digital technologies, because of factors such as scale economies and network effects, tend to produce “winner-take-all” outcomes and today’s superstar firms have simply been better at exploiting these technologies and converting those into rising productivity and profits. In short, the rise of market power is mainly on account of technology, not growing monopolies and declining competition. Third, the chapter finds that macroeconomic implications of the rise in market power—effects on innovation, investment, income distribution—so far have been “modest.”

Why is there such a gap between research findings on trends in market competition and their impacts on growth and income distribution? There are measurement issues; market power is not directly observable and must be estimated. An illustration is issues in the estimation of costs in calculating markups (variable versus fixed costs, the cost of intangibles, etc.). There are different data sets, different country and firm-level coverages across studies, different periods covered, differences in scope in terms of factors and transmission channels considered, and the relative merits of cross-country regressions versus deeper individual country studies. This suggests the need for more research to bridge or explain differences across studies.

Given the measurement issues around market power, it would pay to look at a range of indicators. The IMF WEO chapter focuses primarily on markups, though it does briefly consider some other indicators. Markups are a core indicator, but it would be useful to examine related indicators as well, each of which may be imperfect but can add useful information—indicators such as market concentration; size, distribution, and persistence of profits; share of rents in profits; dynamism in markets in terms of new business formation and labor mobility; merger and acquisition activity; and overlapping ownership of companies. It would be useful to look at not just monopoly power in product markets but also monopsony power in factor markets, which some studies find has been rising as well. Clearly, it is difficult for a single study to do all of this. For the U.S., different studies have looked across these indicators and the dominant picture that seems to emerge is one of a worrisome rise of monopoly power and decline in competitive intensity.

The WEO chapter does find that market power, as measured by markups, has risen more in the U.S. than in Europe, although its estimated magnitude of the rise in the U.S. is smaller than that of some other studies. The larger increase in market power in the U.S. helps explain the stronger concerns being expressed about market competition in the U.S. But how is the larger rise in market power in the U.S. to be explained in terms of the technology versus monopoly story of the rise of market power? If firms in both Europe and the U.S. use broadly the same technologies, wouldn’t the stronger enforcement of competition policies in Europe, such as antitrust policies, be part of the explanation?

The WEO chapter’s finding that the rise of market power may largely reflect faster technology-enabled productivity growth in the dominant firms rather than weakening competition in markets seems to deepen the productivity puzzle: Such relatively benign dynamics—booming technology, strong competition in markets, and higher productivity firms gaining market share—if indeed true, make slowing aggregate productivity growth still harder to explain. Yes, the global financial crisis and its aftermath had a negative impact on productivity, but the trend of slower productivity growth predates the crisis and persists, pointing to deeper, structural causes, including a decline in competition in markets as some other analyses suggest.

Similarly, the productivity puzzle is deepened by what the chapter says about intangible capital: that higher markups may not necessarily reflect increased market power as they may be overstated because they do not fully net out the difficult-to-measure costs of intangible capital—such as software, R&D, and intellectual property—that are rising and are higher in successful, dominant firms that are more intensive users of intangible capital. This would mean that actual productivity growth may be even lower than currently estimated because the capital input is underestimated.

Some of the relatively modest macroeconomic impacts of rising market power estimated in the WEO chapter may reflect underestimation resulting from the study’s defined scope. The estimation of the impact on labor income excludes the shift in income from labor to capital resulting from gain in market share by firms with high markups and low labor income shares, and it also excludes the rise in wage inequality between firms. These are two important channels for the fall in labor income share and the rise in wage inequality, certainly in the U.S., as the work by David Autor and Jae Song and others has shown.

On the policy front, there is a need to do more to spur and maintain competition, regardless of whether the dominant force behind rising market power is monopoly or technology. In practice, both elements would be present in varying degrees in different country/sector contexts. If competition has weakened, it should be addressed through regulatory reform, stronger antitrust enforcement, etc. But even if rising market power mainly reflects firms gaining dominant market share through early and successful exploitation of new technologies rather than competition failures, there are implications for policy. In their book “Saving Capitalism from the Capitalists,” Rajan and Zingales warned about the dangers of how successful beneficiaries of an open, competitive system, once in dominant positions, can entrench themselves and work to close the system and stifle competition. This may already be happening, not least through the acquisition of rising competitors by the tech giants.

Beyond the conventional regulatory and antitrust policies, the digital economy is raising new challenges for competition policy, including how to regulate proprietary agglomeration of data, as in digital platforms, that is now an increasingly important source of competitive advantage; how to reform patent regimes to better balance incumbent interests and wider diffusion of innovation; and how to address market concentration resulting from tech giants that resemble natural or quasi-natural monopolies given scale economies and network effects. Such challenges will only grow as artificial intelligence drives the digital revolution further. One message on the potential of the next phase of digital transformation is that “we ain’t seen nothing yet.”

Policies will need to be more responsive to change. There has been more action on this new agenda for the digital age in Europe than in the U.S., an example being the General Data Protection Regulation recently introduced in Europe.

The new technologies hold tremendous potential for boosting productivity, economic growth, and human welfare. How effectively and inclusively the potential benefits are realized will depend in no small part on maintenance of an open, competitive environment.