Assessing the threat of monopolies in Retail and Media

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.

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

Source: Compustat, Barclays Research

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

Source: Compustat, Barclays Research

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.