Income and wealth concentration follows the ebbs and flows of the business cycle in America.

Amy Hamilton

2019-04-23 19:45:00 Tue ET

Income and wealth concentration follows the ebbs and flows of the business cycle in America. Economic inequality not only grows among people, but it also grows among companies. A recent McKinsey study shows that only 10% of 5,750 public and private companies (each with over $1 billion in total revenue) account for 80% of their net profits. These top 10% superstar companies can create almost as much firm value as the bottom 10% companies destroy on an annual basis. The top 10% superstar wealth creation has grown 1.6 times in the past 20 years, whereas, the bottom 10% value erosion has risen only 1.5% in the same time frame. One major root cause of this wealth divergence is the corporate focus on key intangible assets and intellectual properties such as patents, trademarks, databases, robots, cloud services, and software solutions. These intangible assets thus serve as affordable competitive moats for the top 10% superstar companies. These top 10% superstar firms spend about 2 to 3 times more on R&D than their peers and hence account for 70% of all R&D expenditures in Corporate America as of early-2019.

However, the top 10% superstar companies are less likely to maintain their product market dominance because half of the superstar companies lose their competitive advantages over the course of one single real business cycle (or about 7-9 years). For this reason, tougher antitrust scrutiny may not be the panacea for addressing the economic implications of anti-competitive clout in tech titans (Apple, Amazon, Alibaba, Facebook, Google, Microsoft, Nvidia, and Twitter), big biotech bellwethers (Johnson & Johnson, Pfizer, Merck, Abbot, Amgen, and Bristol-Myers Squibb etc), and telecoms (Verizon, AT&T, Sprint, and T-Mobile etc). Weaker product market competition may help explain why U.S. productivity growth, capital investment, and wage growth continue to stagnate in recent years.

This dilemma often manifests in the 7%-8% increase in average markups over the marginal costs for more than 900,000 firms from 2000 to early-2019 in accordance with a recent IMF staff report. The higher markups significantly correlate with lower capital investment, subpar wage growth, and less disposable income for the typical U.S. household. In other words, these markups represent the inadvertent social price of market power. Overall, it is important for regulators to help promote greater market competition in several industries such as technology, energy, medicine, air transport, and telecommunication etc.

 


If any of our AYA Analytica financial health memos (FHM), blog posts, ebooks, newsletters, and notifications etc, or any other form of online content curation, involves potential copyright concerns, please feel free to contact us at service@ayafintech.network so that we can remove relevant content in response to any such request within a reasonable time frame.

Blog+More

Our proprietary alpha investment model outperforms most stock market indexes from 2017 to 2026.

Olivia London

2026-02-02 12:30:00 Monday ET

Our proprietary alpha investment model outperforms most stock market indexes from 2017 to 2026.

With U.S. fintech patent approval, accreditation, and protection for 20 years, our proprietary alpha investment model outperforms most stock market indexes

+See More

Larry Summers critiques that the Trump tax holiday for U.S. multinational corporations may cause inadvertent consequences.

Rose Prince

2017-01-17 12:42:00 Tuesday ET

Larry Summers critiques that the Trump tax holiday for U.S. multinational corporations may cause inadvertent consequences.

Former Treasury Secretary and Harvard President Larry Summers critiques that the Trump administration's generous tax holiday for American multinational

+See More

Artificial intelligence continues to push boundaries for tech titans to sustain their disruptive innovations and competitive advantages.

Chanel Holden

2020-11-01 11:21:00 Sunday ET

Artificial intelligence continues to push boundaries for tech titans to sustain their disruptive innovations and competitive advantages.

Artificial intelligence continues to push boundaries for several tech titans to sustain their central disruptive innovations, competitive moats, and first-m

+See More

The SEC sues Elon Musk for his August 2018 tweet that he has secured external finance to convert Tesla into a private company.

Amy Hamilton

2018-09-29 12:39:00 Saturday ET

The SEC sues Elon Musk for his August 2018 tweet that he has secured external finance to convert Tesla into a private company.

The Securities and Exchange Commission (S.E.C.) sues Elon Musk for his August 2018 tweet that he has secured external finance to convert Tesla into a privat

+See More

Paul Samuelson defines the mathematical evolution of price theory and then influences many economists in business cycle theory and macro asset management.

Joseph Corr

2023-05-14 12:31:00 Sunday ET

Paul Samuelson defines the mathematical evolution of price theory and then influences many economists in business cycle theory and macro asset management.

Paul Samuelson defines the mathematical evolution of economic price theory and thereby influences many economists in business cycle theory and macro asset m

+See More

Warren Buffett stock market investment principles

Daphne Basel

2020-02-05 10:28:00 Wednesday ET

Warren Buffett stock market investment principles

Our proprietary AYA fintech finbuzz essay shines light on the modern collection of business insights with executive annotations and personal reflections. Th

+See More