ABSTRACT
Innovation and competitiveness are crucial for the future prospects of countries. Businesses will become more competitive and innovative if they face real competition in their home and international markets. The basis for most competition policy is that competition is good but, individuals and firms cannot always be relied upon to act in a competitive manner. The formation of any competition policy requires a sound understanding of economic principles and a detailed knowledge of the market/s in question. Competitive pressures are seen as one of the main driving forces behind economic growth. However, in recent times there has been an increase in market concentration and profits made by firms in most industries – especially those based around technology. Corporate profits in the United States have risen from 1.9% of GDP in 1978 to 4.5% today and the weighted average market share of the top four firms grew from 26% to 32% between 1997 and 2012 (The Economist 20 November 2018).
This chapter analyses the shifting theoretical debate regarding the role of competition to economic development, the impact of policy responses on competitive market development and market concentration, and ultimately, the impact and relationship across industries and countries of market concentration to productivity. What should market authorities do in response to growing industry concentration levels to provide the building blocks to raise competition, productivity, and welfare? Competition policy must not limit incentives to innovate and grow by harsh treatment of firms who gain market power through innovation and efficiency. It should ensure that there is a level playing field, consumers are not exploited, and regulatory capture does not limit competition. There is a group of technology-based companies that are gaining increased market power at the possible cost of consumers, what can be done to address this?
