This paper by Steve Schmitz seems broadly relevant:
Mechanisms are introduced—call them competition-reducing mechanisms—that enable subgroups to credibly commit to not compete. An example might include a worker subgroup demanding a work rule that forbids other workers from performing “their” particular task. But these mechanisms come at a high cost: reduced productivity. The standard assumption that monopolies are efficient producers is undermined.
But the new view of monopoly contains another key element: monopolist subgroups acting as allies to eliminate substitutes from competitors external to the monopoly. Consider the logic of close substitutes. Politically adept monopolies (as they are de facto since the large majority of monopolies result from special privileges granted by the government) often use their political influence to weaken or destroy existing substitutes for their product. Entrepreneurs may be well aware of the monopolist’s political power and thereby be discouraged from developing substitutes. Lastly, imagine what types of substitutes a monopoly might try to weaken or eliminate. It would not go after those with broad political support. Rather, it would target those with little support, those purchased by politically disadvantaged low-income segments of the population.
Note that the examples in the essay of mechanisms that produce inefficiency are union work rules, non-compete agreements between firms, tariffs, and occupational licensing laws. The former three are not federal regulations on industries, and so would not show up in a comparison of industry dynamism vs. regulatory stringency.
Yeah, the gap between companies’ marginal return on cash investment and sector-specific [EDITED TO SAY: stock market performance] would be a better metric. This would still be incomplete; it leaves out factors like:
“Hollywood accounting” (systematic underassessment of profits in order to extract more money from counterparties with compensation tied to profits)
Labor’s share of income also being elevated by e.g. union work rules
Overall it seems like summary statistics are a pretty limited tool here relative to engaging with the concrete details of what’s going on in specific situations. (This is why I love Jane Jacobs so much.)
Oops, I used the wrong term. I meant return on marginal investment vs returns on equities as an investment vehicle (i.e. stock market returns). Will edit to clarify.
The book The Fine Print covers a lot of examples of “special privileges granted by the government” in a number of industries (rail, telecom, energy). I read it a long time ago, so don’t remember a ton from it. But in case anyone’s interested in more concrete examples of this.
This paper by Steve Schmitz seems broadly relevant:
Note that the examples in the essay of mechanisms that produce inefficiency are union work rules, non-compete agreements between firms, tariffs, and occupational licensing laws. The former three are not federal regulations on industries, and so would not show up in a comparison of industry dynamism vs. regulatory stringency.
The vast majority of occupational licensing laws in the US are not federal regulation either.
Yeah, the gap between companies’ marginal return on cash investment and sector-specific [EDITED TO SAY: stock market performance] would be a better metric. This would still be incomplete; it leaves out factors like:
“Hollywood accounting” (systematic underassessment of profits in order to extract more money from counterparties with compensation tied to profits)
Labor’s share of income also being elevated by e.g. union work rules
Overall it seems like summary statistics are a pretty limited tool here relative to engaging with the concrete details of what’s going on in specific situations. (This is why I love Jane Jacobs so much.)
Can you explain why return on cash vs. return on equity matters?
Oops, I used the wrong term. I meant return on marginal investment vs returns on equities as an investment vehicle (i.e. stock market returns). Will edit to clarify.
The book The Fine Print covers a lot of examples of “special privileges granted by the government” in a number of industries (rail, telecom, energy). I read it a long time ago, so don’t remember a ton from it. But in case anyone’s interested in more concrete examples of this.