The rise of tech giants may be bad news for economy

When it comes to competition, Banque de France is here to tell you your economics textbook was right.

Tech giants like Facebook and Amazon are the tip of the iceberg of a trend toward market concentration. That’s good for profits, but a new study says it also risks harming productivity and growth potential in the long run.

According to Sophie Guilloux-Nefussi, an economist with France’s central bank, the market share of the eight largest companies rose in more than 60% of the sectors of US between 2002 and 2012.

Profits have grown as a consequence, but investment and salaries have failed to keep up. The falling share of companies’ revenue ending up in the pockets of workers may deepen the polarisation of society while the lower investments reduce growth potential for the economy in the years ahead.

Moreover, the barriers to new entrants have become higher, as shown by a sharp decline in the creation of new companies, writes

The reasons for the runaway success of the bigger companies are far from clear. It may a the sign that the best companies are winning, or a consequence of technological progress. Guilloux-Nefussi isn’t convinced though.

“Other studies suggest a more pessimistic scenario and attribute the increase in concentration to the fact that the barriers to competition are becoming higher. The rise of profits and the decline in investment support this second hypothesis”.