Heavy Is the Head that Wears the Crown: Industry Concentration in the US

Anil Rao and Ric Marshall

Multiple state attorneys general in the U.S. closed out 2020 with a barrage of suits against Google LLC and Facebook Inc. alleging anticompetitive behavior. The EU followed up by enacting sweeping powers against technology firms, passing the Digital Services Act and Digital Markets Act. In short, regulators, consumers and investors could be grappling with the influence of these firms throughout 2021.

Here we trace how U.S. retailing (Amazon.com Inc.), software (Microsoft Corp.), hardware (Apple Inc.) and media & entertainment (Alphabet Inc. and Facebook) all have become significantly more concentrated over the last five years. In contrast, capital goods and semiconductor manufacturing have become more competitive, as once-dominant firms such as General Electric Co. have ceded share.

The Herfindahl-Hirschman Index is used to measure industry concentration by both market capitalization and smoothed sales. The concentration ratio is the effective number of firms divided by the actual number of firms in an industry. A higher value indicates a more competitive industry, and a lower value indicates a more monopolistic industry. Larger circles represent larger industries based on their market capitalization in the MSCI USA IMI.