In our recent Impact Series report on corporate concentration and market power, we found a link between rising corporate concentration, declining competition and growing market power of dominant firms, to the detriment of business dynamism, innovation and workers’ share of income in many industries.
Our measure of competition has declined since 2000
Note: Principal components are estimated after standarising each data series after removing industry means. Sample includes 38 industries, 1993-2016.
Source: Barclays Research, using data from the Bureau of Labor Statistics, the Bureau of Economic Analysis and Compustat.
It is important to look beyond concentration when gauging competition: the existence of large firms is in itself not proof of market power.
However, rising concentration does not always equal less competition in every sector of the US economy. Some sectors are still robustly competitive as more efficient and profitable companies gain market share in an environment that rewards the best firms. This disparity in competitiveness reveals itself in the retail and media sectors, both of which are increasingly concentrated. To establish just how competitive (or not) these sectors are, we applied the Barclays Competitiveness Indicator (BCI), which measures three key characteristics associated with a competitive environment: labour share, business investment and job churn.
Retail: The positive effects of e-commerce
The rise of e-commerce has improved price transparency and put pressure on margins. But it has also led to the emergence of very large, potentially dominant firms that could abuse their positions as concentration increases.
Our retail universe
We analysed three baskets of retail companies that sell directly to consumers:
- internet and direct marketing companies (e.g. Amazon)
- multiline, department-style retailers, which sell a variety of goods (e.g., Macy’s)
- specialty retailers (e.g., Home Depot)
What our retail BCI shows
Using the Barclays Competitiveness Indicator, we found that competition in the retail sector has been remarkably stable since 2000, with rising e-commerce having little effect on the competitive dynamic. In fact, new entrants have forced incumbent retailers to invest and innovate.
Source: Compustat, Barclays Research
Diving into the three factors that make up the BCI, we find labour share and investment have both remained fairly stable over the past 20 years. However, job churn is the only factor to have fallen, with a particularly sharp decline in the late 1990s. Since then, the decline has been more muted.
Source: Compustat, Barclays Research
Our verdict on competition in retail
Competition is alive and well in retail—for now. This healthy competitive landscape could change quickly if some retail giants start to use tactics, such as loss-leading products, to push small, yet otherwise viable competitors out of the market.
Media: Disruptive shifts shake the landscape
The way we consume media has changed, with new channels competing with traditional TV, print and radio. So while one would expect competition to be heating up, concentration nearly doubled between 1996 and 2016—a rate much higher than the average 60 percent rise in concentration across industries we discuss in our Impact Series report.
Our media universe
Our analysis covers:
- broadcasters (e.g., CBS)
- publishers (e.g., News Corp)
- entertainment (e.g., Disney, Netflix)
- interactive media and services (e.g., Alphabet, Facebook)
What our media BCI shows
Our metric indicates that competition in media has declined markedly since the 1990s, in sync with the rise in concentration.
Source: Compustat, Barclays Research
Labour share of income has steadily declined over the past 12 years. Job churn and investment have also declined, with notable volatility in both, especially the latter, around the time of the tech bubble.
Source: Compustat, Barclays Research
Our verdict on competition in media
Competition in media has suffered as concentration has risen; however, this trend has not been seen uniformly across the sector. Concerns over the largest digitally focused media companies stifling competition appear warranted, according to our analysis. But traditional print, TV and radio still seem to display a healthy competitive landscape.
Are these sectors likely to face regulatory intervention?
Both the retail and media sectors are at risk of regulatory scrutiny if policy makers increase their focus on market power.
However, based on our analysis, we believe the concerns about declining competition in retail are misplaced—at least for the moment—and see little cause for intervention. Still, the media sector may merit the scrutiny it has received, although all media companies should not be treated the same. In our view, the area of digitally focused media is where competitiveness is waning, the effects of which are felt through the entire sector as we defined it.
In the long term, the likelihood of a policy response targeted at the largest media companies is growing, particularly given the recent focus on the sector from policymakers and politicians. A well-designed response may reduce the market power that some firms may have accumulated. But we believe there is also a risk that regulatory intervention may achieve the opposite effect by entrenching their dominance.
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About the analysts
Jeff Meli is Head of Research within the Investment Bank at Barclays. Jeff joined Barclays in 2005 as Head of US Credit Strategy Research. He later became Head of Credit Research. He was most recently Co-Head of FICC Research and Co-Head of Research before being named Head of Research globally. Previously, he worked at Deutsche Bank and JP Morgan, with a focus on structured credit. Jeff has a PhD in Finance from the University of Chicago and an AB in Mathematics from Princeton.
James K Martin is a US Credit Strategist at Barclays, focusing on the investment grade market. Jim joined Barclays in 2012 and worked as part of the London-based European Credit Strategy team covering High Yield and Loans before joining the New York-based US Credit Strategy team in 2017. Prior to Barclays, he worked at Greenwich Associates. He graduated Phi Beta Kappa from Trinity College with a BA in Economics and Formal Organisations.
Authorised clients of Barclays Investment Bank can log in to Barclays Live to view the complete report, entitled Retail & Media: Assessing the elephants in the room.