a trap for the economic dynamism of the United States

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Since the 2000s, competition has changed under the joint influence of digital technologies and patterns of behavior, which diffuse among companies at the technological frontier and reveal what they do when they hinder competition. Blocking the dissemination of knowledge plays a key role in this process.

New empirical regularities

The work converges to identify the most striking facts. Over the period 1995-2015, the market share of top eight American companies increased in 75% of industries, which reflects an increasing concentration. This is also the case for supermarkets. American markets have become less competitive than European markets.

When concentration increases, profits increase. The profit-to-sales ratio increased by 4 points in the United States, while it fell by 1 point in the European Union. This increase does not reflect increased operational efficiency, but higher profit margins in larger companies. As the share of profits increases, the share going to work decreases in these companies.

The digital markets are registering a shift caused by the “the winner takes most of the market” dynamic. Companies that benefit fromeconomies of scale and network effects erect barriers to entry that penalize innovation and block productivity growth. In addition, the lobbying expenses of large companies and the proliferation of regulations increase entry costs which are detrimental to small businesses. We are talking about “the capture of the regulator” by large companies.

The costs of access to technology increase asymmetries between firms at the border and those which remain stuck in a productivity trap because they cannot quickly reach the threshold effects necessary to grow.

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Blocking the dissemination of knowledge

Among the explanatory elements proposed, the models carried out favor the seizure of the diffusion of knowledge which alone explains 70% of the change observed after the year 2000 (U. Akcigit and ST Ates, “What happened to US business dynamism ?“, Becker Friedman Institute, Working Paper, n ° 2019-56). Three elements come into play.

– Digitization increases difficulties in disseminating knowledge between companies. Production processes depend heavily on tacit knowledge accumulated in the form of massive and privatized data. Any digitized element is capable of producing information and the data extracted and analyzed represent an economic asset that accumulates and appropriates and of which the value depends on the digital capabilities of companies which are empowered by learning. These capacities are not transferable between companies, they constitute specific resources and unbalance competition in the markets.

The benefits of big data on users are combined with investments in the best tools to use them. The best data enables better services, which in turn increases the benefits and marginalizes small businesses. In concentrated markets, dynamic companies impose in the minds of consumers their products as essential, the barriers to entry erected by “big data” block competition.

– When the dissemination of knowledge is less fluid, leading companies are protected from imitation by lagging firms. The productivity gap widens, the market power of the leaders increases, the followers are discouraged as well as the potential entrants. The entry rate of new firms is decreasing, there are fewer start-ups and the share of employment for small businesses fell by 30% between 1990 and 2015. At the same time, the decrease in competitive pressure leads to a decrease in innovation among leaders.

– The use of patents has changed. Dynamic companies protect their intangible assets by increasing the number of deposits and purchases of patents. Patent transactions involving small companies fell sharply over the period 1980-2015, while large companies are those who buy the most, to the point that intangible assets represent 84% of capitalization S&P 500 companies in 2015. Initially intended to protect inventors for a given period, patents have acquired a strategic character linked to the desire to block competition or to force negotiations. We observe that patents are less original, they have a narrower scope. They do not have as an essential motivation to reach new fields, they rather have an internal use by being intended to reinforce the existing positions and to protect the technological heart of the company. They participate in the privatization of knowledge by causing foreclosure effects et en limiting the fallout from which competing companies could benefit.

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