打击大公司和促进小企业的案例存在严重缺陷

TheCaseforCrackingDownonLargeCorporationsandPromotingSmall

BusinessesIsDeeplyFlawed

TRELYSALONG|JULY2024

ADemocraticstaffreportfromtheHouseSmallBusinessCommitteeclaimsthatsmall

businessesarebetterfortheeconomyandlargefirmsareharmingit.Butmostofthereport’sassertionsstemfromflawedresearch,anditspolicyrecommendationswouldbedetrimental.

KEYTAKEAWAYS

SmallBusinessCommitteeRankingMemberNydiaVelazquez(D-NY)releasedastaffreportlatelastyearthateffectivelyechoesandsupportstheantitrustenforcement

paradigmchampionedbyFTCChairLinaKhan.

TheVelazquezreport’sassertionsthatsmallbusinessespromotehigherincomegrowth

andlowerpovertyrateswhilereturningahighershareofrevenuetolocalcommunitiesallrelyonflawedresearch.Theyarefactuallyquestionable,atbest.

EvidencealsosuggeststhattheVelazquezreport’scontentionsaboutlargefirmsgainingmarketpowerandtheirsubsequentimpactonsmallbusinesses,localcommunities,

inequality,andpricesarelikelyinaccurate.

Theassertionthatconsolidationcannegativelyimpactsupplychainresilienceisinaccuratebecauseitfailstoconsidertheroleofinnovation,scale,andgeography.

Byattackinglarge,highlyproductivefirms,thereport’spro-small-businesspolicyproposalswouldraisepricesandlimitinnovation.

Ratherthanembraceananticorporateagendatoencouragenewbusinesscreation,Congressshouldembracefirm-sizeneutralityinallitspolicies.

INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATION|JULY2024PAGE2

CONTENTS

KeyTakeaways 1

Introduction 3

RefutingClaimsAbouttheBenefitsofSmallFirms 4

Claim1:SmallBusinessesPromoteIncomeGrowthandReducePovertyRates 4

Claim2:SmallBusinessesReturnMoreRevenuetotheLocalEconomy 5

RefutingClaimsAboutLargeFirmsandConcentration 6

Claim3:LargeCorporationsAreAccumulatingMarketPower 6

Claim4:LargeCompaniesAreUsingTheirMarketPowertoHarmSmallBusinesses 7

Claim5:LargeFirmsAreExtractingMoreFromLocalCommunities 9

Claim6:LargeFirmsAreUsingTheirMarketPowertoIncreaseInequality 10

Claim7:LargeCompaniesPadTheirProfitsbyIncreasingPricesWithHigherMarkups 12

Claim8:ConsolidationResultsinPoorSupplyChainResilience 14

ConsequencesofAnti-Big-BusinessPolicyRecommendations 15

QuestionableRecommendation1:ChallengeMergersandAcquisitions 15

QuestionableRecommendation2:IncreaseAntitrustEnforcementActions 16

QuestionableRecommendation3:Finalizethe2023MergerGuidelines 17

QuestionableRecommendation4:RevivetheRobinson-PatmanAct 18

QuestionableRecommendation5:PassaSeriesofNewAntitrustLaws 18

QuestionableRecommendation6:ReformtheTaxCode 20

QuestionableRecommendation7:ExpandtheSBAOfficeofAdvocacy’sRole 21

Conclusion 22

Endnotes 23

INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATION|JULY2024PAGE3

INTRODUCTION

DemocraticstaffontheU.S.HouseCommitteeonSmallBusinesspreparedasomberreportlatelastyearassertingthat“recentgrowthinconcentrationandthedeclineincompetitioninthe

Americaneconomy…hashollowedoutruraltownsacrossthecountry,loweredbusiness

dynamism,weakenedtheeconomyinthefaceofshocks…andhurtbusinesses,workers,andconsumers.”

1

RankingMemberNydiaVelazquez(D-NY)laterputafinepointonthereport’sconclusions,writinginTheHill:

Dominantfirms…haveusedtheirmarketpowertocrushsmallercompaniesanddiscouragenewentrants.Asaresult,oureconomyhasgrownmoreconsolidated,oursupplychainslessresilientandourcommunitiesmoredependentonlarge

corporationsthatoftenservetoextractmorethantheycontributetolocaleconomies.

2

“BigTechisjustthetipoftheiceberg,”Velazquezcontinued.“Asurveyofoureconomyrevealsmonopolypowerinnearlyeverysector.”

3

Therefore,sheargued,“Inadditiontoblockingmergersthatmayharmsmallerfirms,theFederalTradeCommissionshouldworktoreviveexisting

authoritiestoensurealevelplayingfield.”

4

Asanexample,shecalledontheFTCtoreinvigorateitsenforcementoftheRobinson-PatmanAct“toprotectsmallretailersfromthebuyingpoweroflargechains.”

5

ItiscriticalforpolicymakerstounderstandthatmostoftheassertionstheVelazquezreportmakesaboutlargeandsmallfirmsareinaccurate.

TheanalysisandrecommendationsthatVelazquezandherDemocraticcommitteestaffput

forwardintheirreportandsubsequentcommentarypiece(togetherhereafterreferredtoasthe“Velazquezreport”)havesignificantpoliticalappealbeyondjustDemocraticcircles.Infact,thereport’sargumentseffectivelyechoandsupporttheantitrustenforcementparadigmchampionedmostvocallybyFTCChairLinaKhan,whointurnhasmadecommoncausewithanincreasinglyinfluentialgroupof“Khanservative”Republicans.

6

Theseideasthuscouldbearareareaof

agreementforthenextadministrationandCongress,regardlessofthebalanceofpowerafterthecomingelection.Thisistroublingbecause,despiteproponents’bestintentions,theiragenda

wouldfundamentallychangethecharacteroftheU.S.economy,fortheworse,byraisingpricesandinhibitinginnovation.

So,itiscriticalforpolicymakerstounderstandthatmostoftheassertionstheVelazquezreport

makesaboutlargeandsmallfirmsareinaccurate.Forexample,thereportarguesthat

concentrationhasrisen,butthestudiesitusesassupportingevidenceareflawed.Meanwhile,otherstudieshaveshownthatconcentrationhasremainedaboutthesameinrecentdecades.

ThisreportwillrefutetheVelazquezreport’smainclaimsaboutsmallandlargefirmsand

demonstratethatmostoftheVelazquezreport’spro–smallbusinessrecommendationswouldhavenegativeeconomicconsequences.Policymakersthereforemustrejectthem.

INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATION|JULY2024PAGE4

REFUTINGCLAIMSABOUTTHEBENEFITSOFSMALLFIRMS

TheVelazquezreportcontendsthatsmallbusinessesbenefittheeconomymorethanlarger

companiesdo,butthisassertionreliesonshakyfoundations.Indeed,theassertionthatsmallbusinessespromotehigherincomegrowthandreducepovertyinlocalcommunitiesdoesnothavestrongsupportingevidence.Meanwhile,thecontentionthatsmallbusinessesreturna

highershareofrevenuetothelocaleconomyisalsoquestionableandcouldharmthenationaleconomyifeverycommunity,andevenneighborhood,adoptedsuch“beggarthyneighbor”

policies.

Claim1:SmallBusinessesPromoteIncomeGrowthandReducePovertyRates

TheVelazquezreportcontendsthatsmallbusinessespromotehigherincomegrowthandreducepovertyratesinlocalcommunities,assertingthat“communitieswithmoresmallandlocally

ownedbusinesseshavehigherincomegrowthandlowerpovertyrates.”

7

However,thisassertionisinaccuratebecauseithingesontwoflawedstudies.

First,thestudybyFlemingandGoetzcitedassupportingevidencehasamethodologicalflaw.

8

Thestudyusesdatafrom2000to2007tofindthatsmall,locallyownedbusinesseshavea

positiveeffectoncountry-levelpercapitaincomegrowthwhilelarge,nonlocalfirmshavea

negativeeffect.

9

However,thisisproblematicbecausetheUnitedStateslostavastshareoflargemanufacturingfirmsthatprovidedhigh-payingjobsinlocalcommunitiesduringthisperiod.

Indeed,asanInformationTechnologyandInnovationFoundation(ITIF)reporthighlights,“From1980to1999,manufacturingjobsdeclinedbyanaverageof0.5percentperyear.Butfrom

2000to2011therateoflossdramaticallyaccelerated,withmanufacturingjobsshrinkingataratenearlysixtimesfaster(3.1percentperyear)thantherateinthepriortwodecades.”

10

Andasignificantshareofthosejobswereinlargemanufacturingcompanies.Corroboratingthis,the

economyalsolost13timesasmanyjobsfrom2000to2010comparedwiththeprevious

decade.

11

Assuch,theresultsfromthestudyarelikelybiasedbecausetheycaptureanatypicalperiodwhenthelocaleconomieshadsignificantlyfewerlarge,nonlocalfirmsthatprovidedhigh-payingjobsandboostedincomecomparedwithsmall,nonlocalones.

Largebusinesseshadastatisticallysignificantpositiveeffectonemploymentgrowth,showingthatthesebusinessesmayactuallyhaveapositiveeffectonlocalcommunities.

Moreover,thestudyalsofindscontradictingevidencetoindicatethatsmallerfirmsmaynothaveabeneficialimpactonpercapitaincomegrowthforalllocalcommunities.Indeed,thepaper

findsthatlocallyownedfirmsfrom1to10employeeshaveastatisticallysignificantnegativeeffectonpercapitaincomegrowthinmetropolitanareas.

12

Supportingthis,astudyby

Rupasinghafindsthatfirmsinthissizeclassdonothaveastatisticallysignificantimpacton

metropolitancountries.

13

Assuch,thissuggeststhatthegrowthofthesekindsofsmallfirms

couldlikelyreduceincomegrowth.Thisislikelygiventhatsmallfirmshavelowerproductivity

andpaylowerwagesonaveragethanlargefirmsdo.

14

Thus,thispaperprovidesweakevidence

fortheassertionthatsmallbusinesses,especiallythelocallyownedones,promotehigherincomegrowthinlocalcommunities.Moreover,giventhatthedataisfrom2000to2007,thisstudyalsocannotbegeneralizedtothepresent.

15

INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATION|JULY2024PAGE5

AsecondstudybyRupasinghacitedassupportingevidencealsohascontradictingresultsthatfurtherraisequestionsaboutwhethersmall,locallyownedbusinessesarebeneficialto(all)localcommunities.

16

Indeed,thestudyfindsthatmicroresident(local)businesseshaveapositive

effectonincomegrowthbutsmalloneshaveanegativeeffect,meaningthatsmallfirmsmayactuallyreduceincomegrowth.

17

Itclaimsthatwhenendogeneityiscontrolledfor,microandsmallbusinesseshaveabeneficialimpactonpovertyreductionforallcountries.

18

However,whenfurtherdisaggregated,smallbusinessesdonothaveastatisticallysignificantimpactonmetroareas,indicatingthattheymaynotbebeneficialtopovertyreductioninalllocal

communities.

19

Assuch,theassertionthatsmallbusinessespromotehigherincomegrowthandreducepovertyratesinalllocalcommunitiesis,atbest,questionable,giventheweakevidence.Similartothepreviousstudy,theresultsinthispaperalsocannotbegeneralizedtothepresent,astheanalysisisfortheperiod2000to2009.

20

Moreimportantly,theRupasinghastudyalsoshowsthatlargebusinessesarenotdetrimentaltolocalcommunitiesevenifsmalleronesmaybebeneficial.Asthepaperconcludes,large

businessesdonothaveastatisticallysignificanteffectonincomegrowthandchangeinpoverty,meaninglargebusinessesarenotnecessarilyharmfultolocalcommunities.

21

Furthermore,theyfoundthatlargebusinesseshaveastatisticallysignificantpositiveeffectonemploymentgrowth,showingthatthesebusinessesmayactuallyhaveapositiveeffectonlocalcommunities.

22

Additionally,whenendogeneityiscontrolledfor,largebusinessesdonothaveastatistically

significanteffectonincomegrowth,employmentgrowth,orchangeinpoverty.

23

Asaresult,

largebusinessesshouldnotbedemonizedinfavorofsmallfirms,astheycouldbebeneficialtolocalcommunities.Thisislikelythecase,astheU.S.CensusBureaufoundthatfirmswithmorethan500employeespaytheirworkers38percentmorethandofirmswithfewerthan100

employees,promotinggreaterincomegrowthwhilereducingpoverty.

24

Claim2:SmallBusinessesReturnMoreRevenuetotheLocalEconomy

TheVelazquezreportclaimsthatsmall,localbusinessesreturnmoreoftheirrevenuetothelocaleconomycomparedwithnationalchains—58percentofrevenuecomparedwith33percent,

respectively.

25

However,therearetwoproblemswiththisanalysis:Itisbasedonastudythathasmethodologicalissues,anditonlyfocusesonthelocaleconomywhileignoringhowpolicies

basedonthisassertioncanharmthenationaleconomy.

Tobegin,thecitedMaineCenterforEconomicPolicy(MCEP)studyprovidesweakevidencefortheassertionthatsmallbusinessesreturnmorerevenuetolocalcommunities.Thatis,thestudyonlyexaminesthelocalcommunityofPortland,Maine,meaningthatitsresultsareunlikelyto

holdincommunitiesthatarenotsimilartoPortland.

26

Forexample,asimilaranalysisconductedonacitysuchasSanFranciscowithapopulationthatisover10timeslargerthanthatof

Portlandisunlikelytoproducesimilarresults.Forthisreason,thestudy’ssampleisfartoosmalltogeneralizetoalllocaleconomiesintheUnitedStates.

Moreover,thisstudyonlyanalyzes28businessesinthePortlandareafortheirsampleoflocally

ownedbusinesses,whenthecityhasatleastafewhundredofthesebusinesses.

27

More

concerning,thesamplefornationalchainsisevensmaller,withthestudyonlyanalyzingasinglechain:theDollarTree.

28

Asaresultofthissmallsampleofbusinesses,thestudy’sresultslikelymisrepresentthecontributionsoflocal,smallbusinessesandnationally-ownedbusinessestothe

INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATION|JULY2024PAGE6

localeconomy.Thus,theassertionthatlocalbusinessesreturnmorerevenuetothelocalcommunitiesdoesnothavestrongsupportingevidenceandis,atbest,questionable.

Thesecondproblemisthatthisassertionignoresthatwhenalocalcommunitysubstitutes

importsfromotherUScommunities(e.g.,alocalbankopenstotakemarketsharefroma

nationalbank),allcommunitieswillloseincome.AsRobertAtkinsonandMichaelLind

explained,“Thisiszero-sumthinking,ifoneregiongetstokeepmoreofitsspendinginits

regionbypreferringsmall,locallyownedfirms,bydefinitionthatmeansotherregionswillgetless.Butifallotherregionsdothesame,itwillmeanlessspendingforthefirstregion.”

29

Moreover,thenationaleconomywouldalsosufferfromlowerincomesandreducedproductivitybecauseonlyhavinglocalbusinesseswithnoimportsandexportswouldkeepthemoneywithinacommunityandfirmswouldnotbeabletomaximizescaleeconomies.

Indeed,firmsinavastproportionofindustrieswouldnotbeabletomaximizescaleeconomieswhentheyareonlyservingthelocalmarket.

30

Forexample,anailsalonmayonlyneedto

producealowoutputleveltomaximizeitsscaleeconomiesandbeefficient,soitmakessensetohavesmallnailsalonsservingthelocaleconomy.Ontheotherhand,asemiconductorfabricationplantlikelyneedstoproduceveryhighoutputstomaximizeitsscaleeconomiesandbeefficientsinceithashighfixedcostsrelativetomarginalcosts.

31

Inthatcase,itwouldnotmakesensetohavealocalsemiconductorfabservingthelocalcommunitybecausethelocaldemandisnot

enoughforthefabtoproduceatanefficientlevel.Accordingly,thisiswhyexportcontrols

limitingmarketaccesstothesemiconductorindustrycanhaveasignificantimpactonthe

productivityofanation’seconomy.

32

Assuch,eveniftheassertionthatsmallbusinessesare

betterthannationalchainsforlocaleconomiesisaccurate(itisnot),policiesbasedonitcouldharmthenationaleconomy.ThisiswhyAtkinsonandLindalsowrote,“Communitariansmallbusinessadvocatesareactuallyadvocatesfortheirlocalcommunityattheexpenseofthe

broadernationalcommunity.”

33

Havingonlylocalbusinesseswithnoimportsandexportswouldkeepthemoneywithinacommunitybutfirmswouldnotbeabletomaximizescaleeconomies.

REFUTINGCLAIMSABOUTLARGEFIRMSANDCONCENTRATION

TheVelazquezreportcontendsthatlargecorporationsusetheirmarketpowertoharmthe

economyandsmallbusinesses,assertingthatgeographic“areaswithhigherratesof

concentrationinanindustryhavelowerratesofstartupactivities…dominantfirms[can]exploittheirmarketpowerattheexpenseofsmallercompetitors…Thiscanhavebroadimpactsontheeconomythatcanaffecteverythingfromwagesforworkerstopricesforconsumers.”

34

However,

thereport’scontentionsaboutlargefirmsgainingmarketpowerandthesubsequentimpactonsmallbusinesses,localcommunities,inequality,prices,andsupplychainresilienceare

inaccurate.

Claim3:LargeCorporationsAreAccumulatingMarketPower

TheVelazquezreportdeclaresthatlarge,olderfirmshaveaccumulatedsignificantmarketpower,assertingthat“mergersandacquisitionshavebeenaccelerating,andindustriesineverysectorhaveseenincreasingconcentration.Asaresult,industriesarebecomingincreasinglydominatedbyasmallnumberoflargerandoldercompanies.”

35

However,thisassertionisinaccurate

INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATION|JULY2024PAGE7

becauseithingesonflawedstudiesthatdonot,forexample,analyzeconcentrationdataatthe

mostdetailedsix-digitNAICSlevel.Forinstance,astudybyGrullonetal.iscitedassupportingevidence,butthisstudyonlyexaminesconcentrationatthe3-digitsubsectorlevel.

36

Thisis

problematicbecause3-,4-,and5-digitNAICScodesincludemultipleindustriesthatdonot

constitutearelevantmarketinanymeaningfulantitrustsense.

37

Forinstance,itwouldbeabsurdtoarguethatafirmthatmakeschairsandfallsundertheFurnitureandHomeFurnishing

Retailerscode(NAICS:4491)competeswithafirmthatsellstelevisionsintheElectronicandApplianceRetailers(NAICS:4492)industrysector.ThisiswhyITIFhaspreviouslyexplainedthat“tobemeaningful,concentrationmustrefertoaspecificmarket…marketsshouldbe

definedasspecificallyaspossible.”

38

Moreover,astudybyBrauning,Fillat,andJoaquimconcludingthattheeconomyis50percentmoreconcentratedin2018thanin2005wasalsocitedassupportingevidence.

39

However,the

problemwiththisstudyisthatitcannotaccuratelymeasureconcentrationduetothree

methodologicalflaws.First,similartotheGrullonetal.paper,theBrauningstudyalsomeasuresconcentrationatthe3-digitsubsectorratherthanthe6-digitindustrylevel.

40

Second,thestudyusesCompustatdataratherthanofficialCensusdatatomeasureconcentration,butthisdatasetonlycoversthesalesofpubliclytradedfirmswhileexcludingprivatefirms.

41

Assuch,theBoardofGovernorsoftheFederalReserveSystemhasconcludedthatCompustatdataissimplynot

representativeofconcentrationforthewholeeconomy.

42

Indeed,theFedstudyfindsthatthe

correlationofconcentrationratiosofthetopfourfirmsbetweenCompustatandCensusdatawasonly0.1to0.2.

43

Finally,theBrauning,Fillat,andJoaquimstudyalsofailstocapturethe

economy’sconcentrationlevelsduetotheexclusionofmultipleindustriesfromits

measurements.Specifically,thefollowingindustrieswereexcluded:retail(NAICS:44-45),

postalservice(NAICS:491),utilities(NAICS:22),financialandinsurance(NAICS:52),publicadministration(NAICS91/92),andperhapsmostproblematically,thosewithfewerthantwo

firms.

44

Assuch,giventheissues,theassertionthatconcentrationhasrisenwhilefirmshaveaccumulatedsignificantmarketpowerisquestionable.

Only35of851industrieswereconsidered“highlyconcentrated,”meaningonlyinrarecasesdoesariseinconcentrationresultinanincreaseinmarketpower.

Indeed,contrarytowhatsomestudieshaveclaimed,concentrationhasnotrisensignificantly

whenanalyzedatthe6-digitNAICSindustrylevel.Forexample,anITIFanalysisofconcentration

ratiosforthefourlargestfirms,orC4ratios,of6-digitNAICSindustriesshowsthat

concentrationonlyrose1percentagepointfrom34.3to35.3percent.

45

Meanwhile,theC8ratio’sincreasewasonly0.6percentagepoints,risingfrom44.1to44.7percent.

46

Most

importantly,theanalysisconcludesthatonly35of851industrieswereconsidered“highly

concentrated,”meaningonlyinrarecasesdoesariseinconcentrationresultinanincreaseinmarketpower.

47

Moreover,themostconcentratedindustriesin2002werealsofoundtohavebecomelessconcentratedby2017.

48

Allinall,theassertionthatlarge,olderfirmshave

accumulatedsignificantmarketpoweristhusverylikelyaninaccuratedepictionoftheeconomy.

Claim4:LargeCompaniesAreUsingTheirMarketPowertoHarmSmallBusinesses

TheVelazquezreportpositsthatincreasingconcentration,ormarketpowerfromlargefirms,isleadingtofewerstart-ups,assertingthat“areaswithhigherratesofconcentrationinanindustry

INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATION|JULY2024PAGE8

havelowerratesofstartupactivity.”

49

However,thisassertionisaninaccuratedepictionoftheeconomybecause1)concentrationhasnotincreasedsignificantlyenoughtoaffectstart-upratesinthelasttwodecades,2)start-upsincreasedtoanall-timehighlastyear,3)therelationship

betweenconcentrationandstart-upentryisunknown,and4)it’snotatallclearthatmorebusinessstart-upsinlocal-servingsectors(restaurants,retail,etc.)isgoodfortheeconomy.

First,ITIFhaspreviouslymadeclearthat“increasingconcentrationdoesnotseemsizeable

enoughtoaffecttherateofstart-ups.”

50

Indeed,from2002to2017,whilethemarketshareofthefourlargestfirmsonlyincreasedabout1percentagepoint,start-upsincreasedabout16

percentfrom1997to2016.

51

Giventhesechanges,itwouldbedifficulttoconcludethata

strongcausalrelationshipexistswhenconcentrationhasnotexperiencedlargechanges,yetstart-

upentrieshaveseenlargedeclinesduringthisperiod.Second,evenifitisassumedthat

concentrationdidrisefrom2017to2023(theyearswithoutconcentrationdata),theassertionthatconcentrationhurtsstart-upentrieswouldstillfalterbecausebusinessformationhasrisentoanall-timehighinrecentyears.Specifically,fromDecember2017to2023,theseasonallyadjustedbusinessapplicationsforanEmployerIdentificationNumber,aproxyforbusiness

formation,rosefrom3.2millionto5.5million.

52

Inotherwords,evenifconcentrationdidrisesignificantly,sodidthenumberofstart-ups.Assuch,thesefindingscanonlyimplythatanyallegedincreaseinconcentrationfrom2017to2023couldencouragemorestart-upentriesratherthandiscouragethem.

FromDecember2017to2023,theseasonallyadjustedbusinessapplicationsforanEmployer

IdentificationNumber,aproxyforbusinessformation,rosefrom3.2millionto5.5million.Inotherwords,evenifconcentrationdidrisesignificantly,sodidthenumberofstart-ups.

Third,andrelatedly,thereisnostrongbodyofempiricalevidenceontherelationshipbetween

concentrationandstart-uprates.Tobesure,aBrookingsstudycitedassupportingevidence

claimsthatconcentrationandstart-upentriesarenegativelycorrelatedbecauseareaswithhigher

concentrationtendtohavelowerstart-upactivityrates.

53

However,anITIFreportcontradicts

theseresultsandinsteadconcludesthatthereisnorelationshipbetweenstart-uprates,as

measuredusingnewestablishments’shareoftotalestablishmentsinaparticularyearatthe4-digitNAICSlevel,andthechangeinconcentrationinanindustry.

54

TheITIFreportfurther

showsthattherelationshipbetweenstart-upratesandconcentrationisstillunclearwhenit

concludesthatusingadifferentmeasureforstart-ups(thechangeinthenumberofstart-upsasashareoftotalfirmsinanindustry)resultsinapositive,albeitsmall,coefficientof0.05.

55

Inotherwords,therelationshipbetweenconcentrationandstart-upentrycouldbepositive,

negative,ornonexistent.Nevertheless,regardlessoftherelationship,correlationdoesnotequatetocausation,meaningconcentration,ormarketpower,wouldstillneedtobeshowntohave

directlycausedlowstart-upentry.Accordingly,eventhecitedBrookingsarticleassertsthat“thereasonsexplainingthisdecline[inbusinessdynamism]arestillunknown.”

56

Indeed,incertainindustries,ariseinmarketpowerdoesnotaccompanyadeclineinstart-up

entries.AccordingtoastudybyAlbrecht,someindustrieswithlargerincreasesinmarkups,

implyingrisingconcentrationandmarketpower,experienceasmallerdeclineinfirmentry.

57

Forexample,thestudyhighlightsthatthemanufacturingindustriesaccountforone-thirdofthe

increaseinaggregatemarkups,implyingthatafewfirmshavemarketpowerintheseindustries,

INFORMATIONTECHNOLOGY&INNOVATIONFOUNDATION|JULY2024PAGE9

yetexperiencelittledeclineinentry.

58

Meanwhile,inotherindustries,adeclineinconcentrationdoesnotaccompanyanincreaseinstart-upentries.Indeed,anITIFreportfindsthatinthe

depositorycreditindustry,theC4ratiofalls5.7percentbutstart-upsstillfalls72percent.

59

Assuch,thisevidenceshowsthattheassertionaboutconcentrationandlargefirms’marketpowercausinglowratesofstart-upentryis,atbest,questionable,butmorelikelytobeinaccurate.

Lastly,evenifconcentrationdoesindeedresultinfewerstart-upentries,itisnotclearthatmorebusinessstart-upsinlocal-servingsectors,suchasrestaurantsandretailers,arebeneficialtotheeconomy.Thisisbecausethestart-upsinthesesectors(e.g.,pizzaparlors)aresubsistence

ratherthantransformationalbusinesses,meaningtheychoosetoremainsmallratherthanscaleup.However,thisisproblematicfortheeconomybecauselargefirmsareadriverofeconomic

growth.AsAtkinsonandLindwrote,thelocal-servingstart-upshave“littleeffectoneconomic

growth…Economicprosperity