This is the latest twist in modern antitrust enforcement, which is no longer just concerned about consumers paying too much. The latest suit argues workers would have less power in a more concentrated market and that does them harm. It’s true there is more market consolidation, but it’s not clear this hurts workers (or authors). Modern antitrust often feels like a solution in search of a problem. This case is the latest example.
Increased market concentration is not limited to the publishing industry. More than 75% of U.S. industries contain fewer firms compared with the 1990s. Traditionally, when a few firms dominate an industry that means more concentrated market power and customers pay more. But concentration this time is different, consumers may pay less for many goods, including books, but there are reasons to worry that workers could be harmed. The DOJ and the Federal Trade Commission have started to take an active interest in labor market competition. And over the years quite a few economists have become concerned about increased monopsony power when there are fewer firms hiring people, which they argue holds down wages. Indeed, there is evidence suggesting that more concentrated industries have seen a bigger decline in labor’s share of income.
But before the government stops this merger (to preserve what they believe is a competitive industry that rewards diverse ideas), or pursues other deals like it, we need to understand why bigger firms are doing so well and if they actually are hurting workers. Big is not necessarily bad and the fact that labor’s share of income has fallen could just reflect a world where labor is less valuable.
The rise in market concentration didn’t arise from unchecked market power. A more likely explanation is that the world changed and the ideal market structure changed with it. A global technology-driven world created a winner-take-all economy. More global competition and the ability to reach customers all over the world offers big rewards to companies that can scale up quickly. This is in part because of network effects — your product is more valuable if lots of people use it. More users also means scale and access to data to improve your product. In this kind of market bigger firms will have some natural advantages because they will be more productive and dominate their markets. The big publishers are making a similar argument, claiming they need to merge to take advantage of the scale it would offer in order to take on Amazon.com, which is pinching publishers’ profits by lowering the price of books and getting into the publishing business itself.
Reducing industry concentration will not change global economic trends or turn the clock back on technology. And it’s not necessarily true that workers need to be protected. First of all, the winner take-all firms tend to pay better. If you’re lucky enough to work for one your wages will rise faster. One study estimates that one third of the growth of income inequality comes from the difference between people who work at superstar firms (at all skill levels) and everyone else. If big firms were using their power to under-pay workers, they’d pay less, not more. Perhaps breaking them up would make big firms less productive and that would lessen the disparities across firms. But that would harm the overall economy.
Second, even if there are fewer employers on the national level, a paper from an economist at the U.S. Census estimates there are more employers at the local level. How can that be? Before, if you lived in a smallish town maybe you could only work in the local hardware store. Now there is the hardware store, the Home Depot and Lowes. What looks like more concentration nationally can mean more competition at the local level. It’s bad for small local, businesses, but better for employees because they face more demand for their work and larger companies offer more stability in addition to higher pay.
Third, in some ways workers have more power than ever. This was true even before the current labor shortages. Technology makes it possible to search and sell your services to more employers, whether it’s gig and contract work or just job-posting web sites. The market for books is one example. Authors don’t need big publishers as much as they used to. Self-publishing has become more widely accepted, and more easily done with Amazon and Substack. Social media and podcasts have leveled the playing field when it comes to book promotion (though I am very grateful to my publisher, editor, and their PR team; I would be nothing without you).
There are reasons to be concerned about concentration. It may decrease competition in some cases, but it’s not necessarily bad for workers. And if that’s a key justification for blocking the Penguin Random House/Simon and Schuster merger there are better uses of government resources.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Allison Schrager is a Bloomberg Opinion columnist. She is a senior fellow at the Manhattan Institute and author of “An Economist Walks Into a Brothel: And Other Unexpected Places to Understand Risk.”
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