Ben Winck
May 26, 2022, 1:40 PM
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The US's industrial concentration problem isn't anything new. The economy is at least 50% more concentrated now than it was in 2005, according to the Herfindahl-Hirschman Index, a commonly used measure of industry concentration. That means a smaller group of companies control the lion's share of their respective sectors.
Companies typically pass higher input costs on to consumer prices. Yet that pass-through "becomes about 25 percentage points greater when there is an increase in concentration similar to the one observed since the beginning of this century," Fed economists Falk Bräuning, José L. Fillat, and Gustavo Joaquim said. Put simply, dwindling industry competition leads to companies raising prices at a much faster pace.
The pass-through happens through a variety of channels, according to the paper. The rise in concentration over the past two decades has been an "amplifying factor" to cost shocks from supply shortages, energy price spikes, and the labor shortage, the team said.
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