Growing Corporate Market Clout May Cost World Economy, IMF Says

(Bloomberg) -- The market power of corporations is rising across rich economies and could eat into economic growth if the trend intensifies, the International Monetary Fund said.

Corporate market power increased moderately between 2000 and 2015, with price markups increasing by 8 percent, the IMF said in an analysis accompanying its latest World Economic Outlook. The increase was concentrated outside manufacturing, and within a small fraction of firms, the fund said, without naming companies.

While the impact on growth has been “rather modest,” the effect could worsen if market power increases for companies with the ability to impose high markups, said the Washington-based lender. Companies with higher pricing power tend to invest less, the IMF said. Output would have been 1 percent higher in the average advanced economy if price markups hadn’t increased as they did, it added.

Market concentration is gaining steam as a political issue ahead of next year’s U.S. presidential election. Democratic presidential candidate Elizabeth Warren has proposed breaking up big technology companies such as Amazon.com Inc., Alphabet Inc.’s Google and Facebook Inc., saying they crowd out competition. President Donald Trump has said his administration is looking into anti-trust violations by big tech companies, though the government hasn’t acted.

The IMF said the rise in market concentration suggests changes in the “structure” of product markets in recent years, with a “winner-takes-most” culture taking hold for the most productive and innovative companies.

The fund said there’s evidence that rising market power reduced the share of income held by labor, widening the gap between workers and owners of capital. The IMF urged policy makers to lower barriers to entry into markets, liberalize trade and foreign investment, and adjust competitive policy.

The full World Economic Outlook, including the fund’s updated growth forecasts, will be released April 9 at 9 a.m. New York time.

To contact the reporter on this story: Andrew Mayeda in Washington at amayeda@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor, Randall Woods

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