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

Strategic managers envision lofty purposes to enjoy incremental consistent progress over time.

Jonah Whanau

2020-10-06 09:31:00 Tuesday ET

Strategic managers envision lofty purposes to enjoy incremental consistent progress over time.

Strategic managers envision lofty purposes to enjoy incremental consistent progress over time. Allison Rimm (2015)   The joy of strategy: a bu

+See More

USPTO fintech patent protection and accreditation

Andy Yeh Alpha

2023-01-03 09:34:00 Tuesday ET

USPTO fintech patent protection and accreditation

  USPTO fintech patent protection and accreditation   As of early-January 2023, the U.S. Patent and Trademark Office (USPTO) has approved

+See More

U.S. Treasury's proposal for financial deregulation aims to remove key aspects of the Dodd-Frank Act.

Rose Prince

2017-08-25 13:36:00 Friday ET

U.S. Treasury's proposal for financial deregulation aims to remove key aspects of the Dodd-Frank Act.

The U.S. Treasury's June 2017 grand proposal for financial deregulation aims to remove several aspects of the Dodd-Frank Act 2010 such as annual macro s

+See More

PwC releases a new study of top innovators worldwide as of November 2018.

Daphne Basel

2018-11-07 08:30:00 Wednesday ET

PwC releases a new study of top innovators worldwide as of November 2018.

PwC releases a new study of top innovators worldwide as of November 2018. This study assesses the top 1,000 global companies that spend the most on R&D

+See More

The Trump administration weighs the pros and cons of a potential mega merger between AT&T and Time Warner.

Laura Hermes

2018-05-08 13:39:00 Tuesday ET

The Trump administration weighs the pros and cons of a potential mega merger between AT&T and Time Warner.

The Trump administration weighs the pros and cons of a potential mega merger between AT&T and Time Warner. Recent stock prices show favorable trends for

+See More

AYA free finbuzz ebook *Trump economic reform* as of January 2019

Andy Yeh Alpha

2019-01-31 08:40:00 Thursday ET

AYA free finbuzz ebook *Trump economic reform* as of January 2019

We offer a free ebook on the latest stock market news, economic trends, and investment memes as of January 2019:  https://www.dropbox.com/s/4d8z

+See More