Is Market Concentration Leading to Fewer Startups in the U.S. Economy?

Information Technology and Innovation Foundation

Many economists, market analysts, and antitrust hawks claim increased market concentration over the past 30 years has stifled new business creation, leaving the U.S. economy with fewer start-ups and economic vitality. But a new report released today by the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy, shows that these concerns are largely unfounded and that the rate of real entrepreneurial start-ups in America is healthy.

“There is no statistical relationship between changes in market concentration and new firm formation. The idea that the observed decline in start-ups is caused by monopoly is simply false,” said ITIF President Rob Atkinson, who authored the new report. “When you look at the number of start-ups as a share of all firms in their respective industries, the relationship between the change in concentration and the number of start-ups is actually positive, but still very small—meaning more concentration was associated with more start-ups, not fewer.”

According to the new report, since 1997 all the net decline in start-ups has been in the mom-and-pop retail sector. Yet the decline seen here has not been caused by large retailers abusing their market power to kill start-ups and smaller retailers. These large companies have simply managed to understand and better satisfy customers. In addition, this shift toward larger retailers has benefitied consumers, retail workers, and the overall U.S. economy.

“It is important to understand that new business for new business’s sake is not the right goal. A nation should add start-ups that are productive and innovative and that pay their workers well,” said Atkinson. “In the United States, the rate of real, high-growth entrepreneurial start-ups is in fact healthy. It’s time policymakers moved on to other problems and stopped hand-wringing about monopoly and start-ups.”

Read the report.

The Information Technology and Innovation Foundation (ITIF) is an independent, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy. Recognized as the world’s leading science and technology think tanks, ITIF’s mission is to formulate and promote policy solutions that accelerate innovation and boost productivity to spur growth, opportunity, and progress.

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