Institutional investors and index funds have experienced spectacular growth over the past several decades. And regulators need to pay more attention to protecting economic vitality and consumer well-being — and less to industry lobbyists. Business investment across the economy has perked up lately, but it is not as robust as one might expect given the surge in profits, the extraordinarily low-cost of equity and debt, and the amount of cash on corporate balance sheets. Team A, which consisted of seniors Allen Haugh, Spencer Buzdon, Chris Ware and junior Dylan Suffredini, placed first out of 35 four-person teams representing 22 schools from across the country. Are companies that rise to the top “heroes” or “villains”? Owing in part to incumbent firms’ influence in shaping policy to preserve their positions at the expense of start-ups and other would-be competitors, the United States is no longer held up as an exemplar of free markets and regulatory restraint. But in practice, location remains central to competition. In theory, location should no longer be a source of competitive advantage. In 2011, AT&T sought to acquire a struggling competitor, T-Mobile USA, in a $39 billion deal that would have reduced the number of major competitors in the industry from four to three. We need to do so to treat members of our own community with the fairness and compassion they deserve, to improve our scholarship, and to help improve the climate in economics more broadly. That’s good for shareholders, of course, but it’s not so good for consumers or the overall economy. His research focuses on macroeconomics, finance, and labor economics. All work must be your original content and must have been produced solely for this competition. Seen through the villain lens, however, Facebook’s relentless swallowing up of promising young firms effectively squashes the potential of upstarts to become competitors. At the macro level, it is important to know who pays for health care and how best to allocate limited resources to various services, diseases, and health system components in order to maximize the beneficial effect of interventions and improve population health. “Investment is weak relative to profitability and valuation,” NYU’s Thomas Philippon and German Gutierrez concluded in a 2017 analysis built on the historical relationship between investment and the ratio of the market value of a company’s debt and equity to the replacement cost of its assets. Should they be more skeptical about mergers that might lessen “potential competition,” which occurs when one firm buys another in an adjacent market (think Google’s acquisition of YouTube or Microsoft’s acquisition of LinkedIn)? It is time for antitrust authorities to renew their scrutiny of traditional mergers. Please see the Economics Summer School webpage. I study the economics of competition and other topics in industrial organization using a combination of theory and data. Louisiana requires florists to be licensed. ", The Agenda for the Next Generation of Health Care Information Technology, A Recovery Squandered: The State of U.S. Competitiveness 2019, NEJM Catalyst Innovations in Care Delivery. Today's economic map of the world is characterized by what Porter calls clusters: critical masses in one place of linked industries and institutions—from suppliers to universities to government agencies—that enjoy unusual competitive success in a particular field. Acquisitions that in the past were too small to attract the usual antitrust scrutiny can eliminate potential competition, especially in a world where a company like WhatsApp can grow in just a few years to reach a billion users a day. How should the authorities view the unprecedented power of the new digital giants to crush competitors? If we’re slow to take action to bolster competition — perhaps because incumbents successfully wield their power or because of a distaste for regulation of any sort — we risk diluting the dynamism of the economy and restricting the flow of innovations and new ideas, darkening the prospects for our children and grandchildren. Indeed, the power of new tech giants to use their potent networks and the vast amounts of data they collect to thwart competition is one of the biggest challenges facing antitrust authorities today. To the extent that firms are being driven to innovate, there is little to worry about. High and rising profits in an increasingly concentrated market are typically a sign of lessening competition and increased market power by dominant firms. A comprehensive review of retrospective studies of the thousands of mergers and joint ventures over the past 25 years by Northeastern University economist John Kwoka judged that antitrust authorities had been too tolerant both in letting certain types of mergers go unchallenged and in imposing conditions on mergers that were cleared. Take airlines. His research lies primarily within this field, and studies how firms bargain, contract and form supply relationships in imperfectly competitive markets. The Ph.D. And BlackRock is hardly the reincarnation of John D. Rockefeller; the firm is managing other people’s money. Innovation superstars like Google have created winner-take-most markets largely by exploiting network effects, not through predatory behavior. Despite an overall picture of declining competition, it’s not always easy to determine whether or to what extent consumers in a particular industry are harmed by consolidation. The explosion of state occupational licensing rules also harms both workers and new entrants. Health economics is a crucial dimension of global health delivery. A slowdown in business dynamism means that entrenched firms have less to fear from upstarts; as a result, the economy suffers as innovation slows and job growth stalls. This is not the economics class you took in college. Research from Schmalz’s team estimates that U.S. airfares are, on average, 3% to 7% higher than they would be without overlapping institutional-investor ownership. Recent research pins rising beer prices to greater concentration in the industry. The short answer: It’s complicated. A 2010 analysis found that the typical private-insurer payment for inpatient hospital stays in San Francisco (a highly concentrated market) was about 75% higher than in the more fragmented Los Angeles market. The Economics Proficiency Exam will be available online as a self-diagnostic assessment for ECON S-1010, ECON S-1012, and ECON S-1123. Consider beer. Ordering multiple books? Topics include supply and demand, economic decision making, social efficiency, perfect and imperfect competition, labor markets, capital markets, and market failures. At last count, 22% do. This is a start, but regulators and policymakers have more work to do. British library research papers reflective essay vocabulary, common app statement vs essay root cause analysis essay example competition economics essay Harvard. In the first quarter of 2017, Berkshire Hathaway, BlackRock, Vanguard, and Primecap owned a combined 23% stake in Delta, 29% in United, 31% in American, and 38% in Southwest. The increases were particularly large in the airline and health care industries. In 2015, the Justice Department, citing corporate documents in its initial objection to a subsequent Anheuser-Busch acquisition, said the brewer’s strategic plan for pricing “reads like a how-to manual for successful price coordination.”. In some industries, concentration clearly is driven less by innovative superstars than by anticompetitive behavior. (Their clout caught the attention of European regulators long ago.) How does this rise in cross-ownership by institutional investors affect competition? Course description. With waning competitive pressure, productivity growth slows, wages stagnate, and the gap between winners and losers widens. Economics & Business Search Results: 894 found (sorted by date) Click on a column heading to sort search results by title, author, etc. Take the pharmaceutical industry. Policymakers also need to scrutinize regulations that restrict competition across the economy. After the e-commerce company Quidsi — the owner of Diapers.com — rejected a 2009 acquisition overture from Amazon, Amazon responded by cutting prices for diapers and other baby products by as much as 30% on its site and rolling out Amazon Mom, which offered discounts and free shipping. The Harvard Economics department needs to do better, and be more proactive in combating racism, than we have been. In most (though not all) cases, the data points to a lack of competition. The worrisome aspects of increasing industry consolidation can’t be addressed solely through antitrust enforcement. Lately, though, declining dynamism has spread to the tech sector. The FTC decided that it wouldn’t, and the merger went through. CAMBRIDGE, MA – The Harvard Environmental Economics Program has, for the eleventh consecutive year, awarded three prizes to Harvard University students for the best research papers addressing a topic in environmental, energy, or natural-resource economics – one prize each for an undergraduate paper or senior thesis, master’s student paper, and doctoral student paper. Harvard economics essay competition 2020 Better Tomorrows supports youth, adult, and senior residents of affordable housing communities and their neighboring communities. Requirements for Honors Eligibility: 15 courses (60 credits) This line of thinking is controversial. Measured against GDP, corporate after-tax profits are almost double what they were 25 years ago — and higher than at any time since World War II — yet business investment as a share of GDP is up only 13% over the same period. The winners are winning bigger, while the number of new start-ups is falling. The Farmington Economics A Team won the 12th Annual Harvard Pre-Collegiate Economic Challenge on Saturday, April 1. This thinking solidified under the Reagan Justice Department, and for better or worse, the antitrust authorities stood by over the coming decades as the economy grew more concentrated. Ten years ago, the top four U.S. airlines collected 41% of the industry’s revenue. Such regulatory restraints on competition are coming under increasing scrutiny. The Harvard Undergraduate Economics Association (HUEA) is organizing its flagship International Essay Competition this November with the collaboration of Harvard College Economics Review. Harvard Business Review 76, no. And unfortunately, there’s more than enough evidence to conclude that a substantial portion of the U.S. economy suffers from a lack of competition. The research on whether common ownership harms competition may be inconclusive, but the work is increasingly vital as the stakes in major companies held by large institutional investors continue to rise dramatically. In the 1960s, only 10% of U.S. workers had an occupational license. “Although provider concentration could produce efficiencies that benefit purchasers of health care services, the evidence does not point in that direction,” Berkeley’s Brent Fulton concludes in a 2017 review of the literature. In 1980, only 10% of U.S. public companies had institutional investors that held 5% or more of their shares while simultaneously holding shares in rival firms in the same industry; in 2014, 60% did. But does that mean there is less competition or that consumers are worse off? Regulations in the labor market, along with certain employer practices, can also conspire to constrain competition, by limiting workers’ ability to seek new or higher-paying jobs. Lawyer-judges Robert Bork and Richard Posner and Nobel laureate economists George Stigler and Oliver Williamson laid the intellectual foundation for this shift, which spread to the policy arena and the courts in the early 1980s. The promise of a generous payout is a huge incentive to innovative entrepreneurs. In the 1950s and 1960s, many mergers — even ones that would have led to relatively modest increases in concentration — were routinely challenged, but in the 1970s the antitrust framework began to shift toward challenging many fewer mergers. Visualize global trade data and economic growth opportunities for every country Health care is another stark example. On a broader scale, the capacity of Facebook’s platform to spread innovation throughout the economy means that benefits from technological advances accrue faster and more broadly than they would in the hands of a start-up. The National Economics Challenge (NEC) is the country’s only economics competition of its kind for high school students. Quidsi struggled, flirted with Walmart, but eventually sold itself to Amazon. I received my Ph.D. in Economics from the University of Chicago. Copyright © 2020 Harvard Business School Publishing. Some of the requirements are motivated by an urge to protect consumers, but others were clearly orchestrated through lobbying from trade associations eager to raise barriers to entry, limit the number of players in their profession, and raise prices. Issues such as the environment, taxation, and income distribution are … It wasn’t. This was dubbed “the Walmart effect,” because of the impact of the giant retailer not only on the efficiency of its industry but on the entire U.S. economy. Program in the Department of Economics at Harvard is addressed to students of high promise who wish to prepare themselves in teaching and research in academia or for responsible positions in government, research organizations, or business enterprises. They find a similar pattern in banking. By 2012, Amazon had begun raising prices and had slashed the benefits of Amazon Mom. But in the same year, FTC sought to block a merger between Steris and Synergy Health, the number two and three companies in the health care facility-sterilization business. In fact, in a dramatic change from the late 1990s, the Organization for Economic Cooperation and Development says the U.S. now regulates product markets more heavily than many developed economies including Australia, Canada, France, Germany, and Japan. Many also have dissertation committees that include faculty members of the economics department.We encourage tho… Seen through the hero lens, the prospect of selling out to Facebook (or Google or Apple) offers many economic advantages. The government’s approach to antitrust violations is due for an overhaul. Others, however, point fingers internally to some of Harvard… Evidence that there’s too little competition is accumulating. Economists Nathan Miller of Georgetown and Matthew Weinberg of Drexel estimated that prices were at least 6% and 8% higher than they would have been without the joint venture and suggested that the competing brewers coordinated pricing. It tests micro and macroeconomic principles as well as knowledge of the world economy. Recent research suggests that the average markup — the difference between the prices firms charge and products’ marginal cost — is rising in American business, and rising fastest for the most profitable firms. The argument for reexamining current merger guidelines — and, where appropriate, challenging the case law that is said to make Department of Justice and FTC lawyers reluctant to bring cases — is very strong. Welcome to Undergraduate Economics at Harvard! Much of the increase is a result of states extending the occupations for which licenses are required. In this article, I examine the troubling effect of industry consolidation on competition. There’s no question that most industries are becoming more concentrated. It is time for antitrust authorities to renew their scrutiny of traditional mergers. Economists are trying to understand whether this is necessarily a bad thing for competition. However, research from the wider economy (including the tech sector) uncovers classic signs of unhealthy concentration: rising profits, weak investment, and low business dynamism. John Haltiwanger, a University of Maryland economist, notes that the decline in dynamism in the U.S. originated in the retail sector in the 1980s and 1990s. Some professors attribute the recent losses to rising competition from economics programs at peer universities. Harvard Business School ... competition (15) competitive advantage (22) competitive strategy (34) complexity (8) conflict (6) ... economic development (21) economic history (3) economic institutions (19) economic sociology (6) economics (23) economics of design (7) education (17) Because Synergy didn’t do business in the United States at the time, the FTC argued, a merger would preclude any competition that might result from Synergy’s eventual entrance into the U.S. market. Although competition is stiff on the most heavily traveled air routes, 97% of routes between pairs of cities have so few competitors that standard antitrust metrics would deem them “highly concentrated.” In 1990, 65% of hospitals in metropolitan areas were “highly concentrated.” By 2016, 90% were. Industries in which cross-ownership is greater, they note, tend to have corporate compensation packages that offer less reward for beating the competition than do industries with little cross-ownership. But even as the number of retailers starting up and dying off plunged, the industry became more productive. Big firms account for higher shares of industry revenue and are reaping historically large profits relative to their investment. “Concentration could arise from anticompetitive forces,” Autor and his colleagues note, “whereby dominant firms are increasingly able to prevent actual and potential rivals from entering and expanding.” Indeed, research shows that incumbent firms in a wide range of industries — airlines, beer, pharmaceuticals, hospitals — are wielding market power in ways that prevent rivals from emerging and thriving. Mounting evidence, however, strongly suggests that harmful forces are also at play. Another signal of declining competitive pressure is firms’ ability to increase profits without much investment; in competitive markets, companies are driven to invest more to stay ahead of their rivals. From corporate finance, industrial organization, and international business, to markets, competition, and government regulation, HBS doctoral students in Business Economics delve into some of the most pressing and relevant topics in the field of economics through the practical lens of business. Geographic, cultural, and institutional proximity provides companies with special access, closer relationships, better information, powerful incentives, and other advantages that are difficult to tap from a distance. That’s more worrisome, Haltiwanger says, because it portends slower productivity growth. For example, it took Hikma Pharmaceuticals nearly seven years of litigation to get what it needed to produce, in accordance with REMS restrictions, a generic version of Jazz Pharmaceuticals’ major product, Xyrem, a $1-billion-a-year drug used to treat narcolepsy. Global Case Competition Participants, In the last year, the COVID-19 pandemic has changed our lives. Harvard Business Publishing is an affiliate of Harvard Business School. Software engineers and CEOs are not the only ones affected by such regulations: Among employees earning $40,000 or less, about one in seven (13.5%) is bound by a noncompete. Robin S. Lee is a Professor of Economics at Harvard University, where he has taught courses on industrial organization since 2014. The economy is more concentrated. You will learn how businesses think about pricing, production, and differentiation. The more lenient approach relied on three ideas: that harm from increased concentration had to be weighed against the efficiencies to be achieved, that horizontal mergers between competitors were harmful only if they led to less output, and that vertical mergers between supplier and buyer generally were not a problem. Below is a list of in-print works in this collection, presented in series order or publication order as applicable. 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