A possibly major thing that’s changed, which is worth looking into: in today’s world large firms often buy out smaller firms that they were competing with, and similarly-sized large firms often merge together. If the problem turns out to have a single root cause (which it might not), this seems likely to be it.
We have a regulatory regime where mergers and purchases are sometimes blocked, if a regulator thinks this would bring the amount of competition in some sector below a critical threshold, but in practice that threshold is only around 3 firms. While it’s illegal for firms to directly coordinate on high prices, if a combination of intrinsic barriers to entry and mergers gets the number of firms low enough, they can keep prices high using a tit-for-tat strategy which bypasses the ban on explicit price fixing. We also have a lot more firms spread between multiple industries, which enables a previously impossible strategy: maintaining high margins while credibly committing to cut margins if a new firm enters the market.
A possibly major thing that’s changed, which is worth looking into: in today’s world large firms often buy out smaller firms that they were competing with, and similarly-sized large firms often merge together. If the problem turns out to have a single root cause (which it might not), this seems likely to be it.
We have a regulatory regime where mergers and purchases are sometimes blocked, if a regulator thinks this would bring the amount of competition in some sector below a critical threshold, but in practice that threshold is only around 3 firms. While it’s illegal for firms to directly coordinate on high prices, if a combination of intrinsic barriers to entry and mergers gets the number of firms low enough, they can keep prices high using a tit-for-tat strategy which bypasses the ban on explicit price fixing. We also have a lot more firms spread between multiple industries, which enables a previously impossible strategy: maintaining high margins while credibly committing to cut margins if a new firm enters the market.