In July 2021, President Joe Biden issued an executive order (EO) that “established a whole-of-government effort to promote competition in the American economy.”REF According to the White House, the EO’s 72 initiatives for at least 12 federal agencies are necessary to “reduce the trend of corporate consolidation, increase competition, and deliver concrete benefits to America’s consumers, workers, farmers, and small businesses.”REF
The White House cites various sources that, supposedly, support the Administration’s main claim: Declining levels of competition, linked to increased corporate consolidation, have caused many different economic problems, including higher consumer prices and lower wages. While a less competitive environment certainly may lead to such economic problems, the White House fails to make the case that U.S. market competition has declined, let alone that any decline in American competitiveness is due to corporate consolidation.
In many instances, the White House ignores key results of the very studies that it cites, and also makes overly broad generalizations that the evidence does not support. In other instances, the White House selectively reports certain statistics, often while providing no context whatsoever and misrepresenting the underlying data. In fact, the very first statistical claim in the Fact Sheet accompanying the EO—that the “economy has gained more than three million jobs since the President took office”—ignores the fact that the government had shuttered thousands of businesses during the 2020 COVID-19 pandemic, leading to a government-induced drop in employment of approximately 25 million between February 2020 and April 2020.REF
The Administration’s case is less than compelling because its sources do not support its conclusions. The President’s claims represent his Administration’s missed opportunity to bring attention to the many misguided government policies that have made markets less competitive and harmed American consumers. This Backgrounder examines the evidence—and lack thereof—for the Administration’s assertions in each section of the Fact Sheet that summarizes the EO.
The introductory section of the Fact Sheet provides a link to one study in support of the idea that in “over 75% of U.S. industries, a smaller number of large companies now control more of the business than they did twenty years ago.”REF Yet, the Fact Sheet fails to mention that this trend has been driven by the very largest firms in various industries for decades, and that the overall concentration levels have changed very little since the 1980s.REF Just as important, the Administration’s basic statistic reveals little about the overall competitive behavior in any given industry, much less whether firms in these industries now harm consumers.REF
To connect the purported higher industry concentration levels with higher consumer prices, the White House cites a study that estimates that companies have tripled their markups (the amount that firms charge above their cost) as concentration levels increased.REF The Administration ignores at least three mitigating factors. First, the cited study provides just one macro-level estimate of markups, and the authors acknowledge, “Markups alone do not tell the full story about market power.” Second, the study’s authors estimate that the median markup has not changed since the 1950s.REF Third, consumer prices have not been rising faster during the past two decades than during previous years—they have been rising more slowly.REF Combined, these findings do not provide robust evidence that increased concentration levels have contributed to higher consumer prices throughout the economy.
Regarding the effects of industry concentration on wages, the Fact Sheet cites research that estimates that “industry consolidation is decreasing advertised wages by as much as 17%.” While the 17 percent figure is quoted correctly, the study only estimates that increased concentration among some firms “is associated with” a decrease in advertised wages ranging from as little as 5 percent to as much as 17 percent.REF Thus, the Administration chose to only report the high end of the estimate, and to relate that figure, too broadly, to “industry consolidation.”
Although the Fact Sheet makes no mention of it, the cited study uses data only from 2010 through 2013. According to the study’s authors, the data came from the website CareerBuilder.com, and “represents 35% of the total number of [job] vacancies in the US in January 2011.”REF Moreover, the authors claim that “[o]nly about 20%” of the posted vacancies in the data include salary information.REF Given these problems with the sample,REF it is clear that their evidence says nothing about the long-term wage trends in the U.S. economy.
Separately, the opening section of the Fact Sheet claims,
In the late 1930s, FDR’s Administration supercharged antitrust enforcement, increasing more than eightfold the number of cases brought in just two years—enforcement actions that saved consumers billions in today’s dollars and helped unleash decades of sustained, inclusive economic growth.
As evidence, the White House links to a St. John’s Law Review article titled “The Antitrust Legacy of Thurman Arnold.”REF While the article does provide estimates for how much a few of these enforcement actions saved consumers, the source for virtually all those estimates is Arnold himself or the Antitrust division of the Justice Department. Moreover, the article does not include (or reference) any sort of cost analysis of the Roosevelt Administration’s overall enforcement efforts, nor any type of economic analysis of whether that effort “helped unleash decades of sustained, inclusive economic growth.”REF
The second section of the Fact Sheet makes several claims about how changing concentration and competition have affected various labor issues. For instance, the Administration views noncompete agreements as anticompetitive, and claims that “[t]ens of millions of Americans—including those working in construction and retail—are required to sign non-compete agreements as a condition of getting a job, which makes it harder for them to switch to better-paying options.” The White House does not, however, mention that most noncompete agreements are unenforceable unless they are very narrowly defined.REF
Separately, the Fact Sheet states, “Roughly half of private-sector businesses require at least some employees to enter non-compete agreements, affecting some 30 to 60 million workers.” As evidence, the White House cites an Economic Policy Institute paper from 2019.REF This study, in turn, relies on a business-establishment-level survey where nearly half of the respondents indicated that “at least some employees in their establishment were required to enter into a noncompete agreement.”REF While the study does estimate a range of U.S. workers that might be subject to a noncompete agreement, its authors also state that the “survey data do not allow us to determine the precise share of workers nationwide that are subject to noncompete agreements.”REF (Emphasis added.)
Given these shortcomings in the study, the Fact Sheet is, at best, misleading. Furthermore, the Administration ignores that noncompete agreements can be an important source for helping workers. In some cases, these agreements protect firms’ secrets and allow companies to survive by remaining competitive. Similarly, the agreements can mitigate high employee turnover, thus allowing employers to provide greater investments in their workers.REF
Lastly, this section of the Fact Sheet states,
Workers may also be harmed by existing guidance provided by the Department of Justice and Federal Trade Commission to Human Resource personnel that allows third parties to make wage data available to employers—and not to workers—in certain circumstances without triggering antitrust scrutiny. This may be used to collaborate to suppress wages and benefits.
This passage is misleading because not all such types of information exchanges are illegal, a fact that is clearly explained in the Fact Sheet’s supporting reference.REF Perhaps more important, the Administration provides absolutely no evidence that the existing guidance has harmed workers, or that firms have collaborated to suppress wages and benefits.
The White House correctly identifies high prices for pharmaceutical drugs as a public policy concern, but it grossly oversimplifies the issue and ignores many factors that lead to high drug prices. Besides disregarding competitive influences, the Fact Sheet fails to mention the high costs of creating pharmaceutical drugs, much of which is due to government requirements.REF Similarly, although the Fact Sheet cites a RAND corporation study as evidence that “Americans pay more than 2.5 times as much for the same prescription drugs as peer countries,” it fails to mention that many of these other countriesREF impose price controls on pharmaceuticals, thus artificially suppressing prices.REF
The Administration asserts that high drug prices are “in part” due to a lack of competition among drug manufacturers and claims that the market power of the largest pharmaceutical companies allows them to reap higher profits than “the largest non-drug companies.” Such comparisons can lead to misleading conclusions. Companies in different industries operate under a wide range of economic and regulatory circumstances, and therefore it would be prudent to use direct comparisons.
The White House makes similarly misleading claims regarding medical devices. For instance, it sums the market share of the top four U.S. hearing aid manufacturers to imply that a lack of competition has led to high prices and, therefore, too few people with hearing aids. First, a small number of firms making up a large market share does not inherently signal insufficient competition. Also, there are multiple non-price-related reasons why Americans are not using hearing aids, including difficulty to use, discomfort, stigma, and high maintenance.REF To be fair, the Fact Sheet does accurately state that “red tape” has created barriers to new entrants, thus limiting the number of firms selling hearing aids. That is, the Administration admits that current regulations are also an impediment to competition and lower prices.
The Fact Sheet also links high health care prices to consolidation, claiming, “Thanks to unchecked mergers, the ten largest healthcare systems now control a quarter of the market.” Again, the White House oversimplifies the issues. For example, the Deloitte study cited in the Fact Sheet lists positive reasons for why hospital mergers and acquisitions are occurring, many of which are related to the better health of Americans. As that study points out, these improvements have resulted in more Americans being treated at outpatient facilities, reducing the need for as many hospitals, thus contributing directly to more hospital mergers and acquisitions.REF
The Administration also claims that “[c]onsolidation in the health insurance industry has meant that many consumers have little choice when it comes to selecting insurers.” Yet, the very same study that the White House uses to support this statement reports that “[f]or the third straight year, several insurers are entering the market or expanding their service area in 2021. [Also in 2021,] we find that 30 insurers are entering the individual market across 20 states…and an additional 61 insurers are expanding their service area within states [in which] they already operated.”REF The study discusses how consumers have more options and how the number of options has been steadily growing, thus contradicting the Administration.REF
The Fact Sheet claims that the transportation industry is dominated by “large corporations,” and it discusses competitive issues in multiple transportation sectors. It states, for instance, that the “top four commercial airlines control nearly two-thirds of the domestic market,” implying that a lack of competition has led to higher prices and fees. This statement is misleading, though, and oversimplifies the nature of the airline industry in several ways.
First, the airline industry was heavily regulated by the federal government prior to 1978. These regulations had led to many inefficiencies and caused pricing and entry limitations for airline carriers, culminating in a push to deregulate the industry.REF Following deregulation, airline carriers experienced greater market competition predominantly through the entry of low-cost carriers.REF Low-cost carriers are airlines that offer lower prices, point-to-point service, and have complimentary in-flight amenities.REF These carriers may be more affordable for consumers, and serve as direct competition to the legacy airlines American, Delta, and United.
The Fact Sheet misconstrues evidence from Statista.com: It is true that American Airlines, Southwest Airlines, Delta Air Lines, and United Airlines are the four carriers with the largest market share,REF but Southwest is a low-cost carrier that is now considered a “model for other carriers both in the United States and abroad.”REF Southwest is arguably one of the most successful airline carriers in terms of pricing, route service, and flight frequency—all thanks to deregulation that increased competition.REF
The Fact Sheet gives the impression that other smaller airlines (such as Envoy Air, Frontier, JetBlue, SkyWest, and Spirit) hold limited market power and are therefore not competitive with the top four carriers.REF The Administration’s view is mistaken. Envoy, Frontier, JetBlue, SkyWest, and Spirit serve a different sector of the airline market than American, Delta, and United. Smaller airlines tend to offer lower prices and operate on shorter routes, which coincides with the nature of these airlines and accommodates a specific customer base. The fact that these airlines are not competitive with the top four carriers is not necessarily bad for competition. These airlines are not intended to compete directly with the top four carriers. Instead, these smaller airlines undercut legacy carriers’ prices and serve customers who want cheaper fares and travel shorter distances.
Similarly, it is misleading to characterize other smaller carriers as having substantially less market share than the “top four commercial airlines” because these other carriers are code-share partners with the larger airlines. Under code-sharing agreements (airline alliances), one airline sells tickets and seats on another carrier’s flight.REF As such, these agreements can be beneficial to airline firms and consumers through complementary route networks.REF That is, the smaller carriers benefit extensively from the top carriers’ stance in the market. Code sharing explicitly allows airlines with less market share to advertise through the top four airlines, thus benefitting from the top airlines’ position in the market.REF If some airlines did not hold substantial market share, code sharing would be useless, which would in turn hurt smaller airline carriers. Legacy airline carriers with greater market share help smaller airlines to advertise and attract customers through their frequent flyer programs.
The Fact Sheet also claims that “[r]educed competition contributes to increasing fees like baggage and cancellation fees,” but it provides no evidence of this claim. Instead, the Administration cites a 2018 Business Insider article that announced that American, Delta, and United were raising their checked-bag fees by $5.REF In fact, the article mentions that many airlines raised their bag fees in succession, and the first firm to do so (during this period) was JetBlue, a low-cost carrier. The article also describes these fee increases as part of a practice called unbundling, a move that “began in the late 2000s when airlines recognized the necessity of gaining extra revenue to counteract the higher price of crude oil.”REF
Similarly, the White House blames industry consolidation for enabling “powerful container shippers” to charge “exorbitant fees for time their freight was sitting waiting to be loaded or unloaded,” and notes that these fees can “add up to hundreds of thousands of dollars.” The Fact Sheet provides no evidence that industry consolidation has caused such problems, it merely links to a 2019 opinion column and a 2018 announcement about a Federal Maritime Commission (FMC) probe into high fees.REF
FMC Commissioner Rebecca Dye issued a final report in December 2018 regarding demurrage and detention. The final report encourages the FMC to establish a Shipper Advisory Board to “anticipate and avoid” any potential investigations for the maritime industry in the future.REF The final report also suggests creating “Innovation Teams” to establish standardized approaches to solve maritime issues.REF These approaches include notification of cargo availability, paying special attention to billing practices, properly establishing processes and procedures for demurrage and detention resolutions, and providing clear definitions of “demurrage” and “detention” to eliminate potential issues.REF
The Fact Sheet makes sweeping statements, such as, “The markets for seeds, equipment, feed, and fertilizer are now dominated by just a few large companies, meaning family farmers and ranchers now have to pay more for these inputs.” Yet, the studies on which the Administration relies to bolster this claim do not make a compelling case that input prices have risen due to market concentration. Furthermore, the studies focus on specific commodities, not overall input prices.REF
The Fact Sheet also fails to provide evidence that, in general, input prices are increasing. In fact, according to the Economic Research Service at the U.S. Department of Agriculture (USDA), input prices have been on a long-term downward trend relative to the cost of labor.REF Additionally, evidence shows that input prices tend to adjust with crop prices, meaning that if crop prices fall, input prices follow. Overall, it cannot not be concluded that all farm input prices have increased.REF
The Administration claims that “corn seed prices have gone up as much as 30% annually,” which is a mischaracterization of the data because the increase was for one year only (2009).REF Such use of the data is particularly misleading because seed prices, especially those listed in the Fact Sheet (for corn, soybeans, and cotton), are extremely volatile.REF Incidentally, fertilizers, particularly over the past few years, have been subject to countervailing dutiesREF (taxes), a policy that has most likely contributed to any increases in short-term input prices.REF Regardless, while the Administration claims that some farmers and ranchers “have to pay more,” the federal government has been paying other farmers billions because the prices they receive are too low, and the Congressional Budget Office is predicting that corn and soybean prices will remain low “for years to come.”REF
Regarding increased consolidation of the seed market, the Fact Sheet cites an opinion column by Kristina Hubbard, the director of advocacy and communications for the Organic Seed Alliance.REF The Administration omits any reference to the possibility that government intervention and a disproportionate allocation of subsides to a few commodities, including corn, cotton, and soybeans, could have worsened concentration by insulating select farmers from competition.REF
The White House tries to bolster the claim that “consolidation…limits farmers’ and ranchers’ options for selling their products” by citing the USDA data on meat-price spreads (the difference between the price that farmers receive and the price that consumers pay in the grocery store). However, the cited data range only from 2015 to 2020 for annual averages (and from June 2019 to June 2021 for monthly values). Given the high volatility of agriculture prices, this time frame is insufficient to establish a long-term trend.REF
The Fact Sheet states that ranchers’ share of the price for beef has decreased because of consolidation, and then cites a New York Times article describing the supply-and-demand shocks to the industry from the pandemic. The article provides no direct evidence that ranchers’ share decreased because of more industry consolidation. These shocks are apparent in the monthly USDA data during the shutdowns. The disturbances resulted in higher wholesale prices due to lower processing capacities even though an excess supply of cattle would ordinarily have depressed prices.REF Thus, the recently depressed share for cattle ranchers is, in large part, due to an extremely disruptive economic shock, not because of industry consolidation.
The White House further decries increased concentration by noting, “In short, family farmers and ranchers are getting less, consumers are paying more, and the big conglomerates in the middle are taking the difference.” It cites a Center for American Progress report that claims:
[S]mall and midsize farmers struggle to keep their operations running and make ends meet. Indeed, real net farm income for intermediate farms—defined as family farms operated by someone whose primary occupation is farming and with annual gross cash receipts of less than $350,000—has seen little improvement over the past two decades.REF
One problem with this type of analysis is that net farm income does not represent farmers’ total income. Rather, it is a measure of the net income earned only from farming, similar to profits earned in other businesses.REF However, when looking at farm household income,REF median farm household income was 21 percent greater than median non-farm household income in 2019.REF
The Administration also says that farmers’ and ranchers’ share of each dollar spent on food is declining. To support this claim, it uses the USDA’s food dollar metric, a measure that “shows the farm and marketing cost split in a typical $1 food purchase.”REF It is true that the farm share is trending downward, but only very slightly. Between 1993 and 2019, the average farm share was 15.5 cents; the highest farm share was 16.9 cents (in 1998), and it was 14.9 cents in 2019.REF Objectively, these figures do not represent large deviations from the long-term average.REF
Finally, the Fact Sheet states that American farmers and ranchers are “squeezed by foreign corporations importing meat from overseas with labels that mislead customers about its origin.” Aside from the fact that this statement contradicts the notion that the industry is now less competitive, the White House provides no evidence to support its position that foreign companies are “squeezing” domestic corporations. In fact, the Administration cites a Bloomberg article that focuses on the benefits of these imports to consumers, that praises one of the very meatpackers the Fact Sheet elsewhere criticizes for being anticompetitive and hurting farmers, and does not provide any evidence that farmers and ranchers are being harmed by such imports.REF
Regardless, the Fact Sheet does not mention that, while the labeling of meat may indeed now be confusing, it is not due to foreign competition. Rather, it is due to inflexible U.S. labeling regulations that (in addition to confusing consumers) impose high costs on meat processors, farmers, and ranchers.REF
The Administration asserts that many Americans lack access to broadband services as a result of limited competition. In fact, 95.6 percent of Americans in 2019 could access fixed terrestrial broadband at speeds of 25/3 megabits per second (Mbps)—the benchmark for advanced telecommunications capability.REF In addition, 99.9 percent of the U.S. population has access to mobile service (at 5/1 Mbps), and 95.5 percent has access to both mobile and fixed services at those speeds.REF
The Fact Sheet also claims that “[f]amilies are paying higher prices for necessities—things like…internet service.” There is considerable debate about whether broadband prices have risen or fallen over time and, as is often the case in such debates, the answer lays in how the calculation is constructed. When comparing the same type of service over time, the cost of the most widely purchased tiers of cable broadband has declined by 98 percent during the past 15 years, from $28.13/Mbps to $0.64/Mbps.REF
Focusing on the average cost of broadband or (other computations) can give the impression that prices have risen, but this method is overly simplistic because of myriad factors that determine rates. For example, transmission speeds may vary, as do service bundles and promotions. The cost of service also depends on geography, population density, and taxes. Generally speaking, broadband rates are progressive. That is, households with above-average incomes tend to purchase higher-priced enhanced services, while lower-income households pay less for more basic services. The simplistic nature of the figures cited in the Fact Sheet—some of which lack a verifiable source—misrepresent the role of competition in pricing.REF
The Administration also claims that consumers pay more for broadband because competition is lacking. According to the Fact Sheet, “More than 200 million U.S. residents live in an area with only one or two reliable high-speed internet providers, leading to prices as much as five times higher in these markets than in markets with more options.” The combination of studies cited by the Administration does not, however, support this conclusion. For example, the number of service providers in an “area” (as cited by the White House) does not include satellite service, and the areas cited overstate the likely population affected. If satellite service is included, the proportion of U.S. residents living in an area with only one or two providers declines from 64.07 percent (211 million) to 4.02 percent (460,600), and the number of U.S. residents with three or more high-speed Internet providers increases from 32.17 percent to 95.94 percent.REF The Administration also fails to provide evidence that a limited number of service providers in any area drives up broadband rates.REF
The Fact Sheet asserts that broadband “exclusivity deals” have harmed low-income and marginalized neighborhoods by “effectively block[ing] out broadband infrastructure expansion by new providers.” To support these assertions, the Administration relies on a study that did not examine such arrangements. Moreover, federal law prohibits exclusive-access agreements between property owners and broadband providers.
The Fact Sheet also asserts that a lack of price transparency makes comparison shopping hard, citing a supposed finding by the Federal Communications Commission (FCC) that actual prices can be 40 percent higher than advertised. This claim misrepresents the data attributed to the FCC. In fact, the 40 percent figure was mentioned in a 2016 news release by the agency in reference to unverified customer complaints. According to that release:
The FCC receives more than 2,000 complaints annually about surprise fees associated with consumers’ Internet service bills. The actual prices paid for broadband-related services can be as much as 40 percent greater than what is advertised after taxes and fees are added to a bill, according to consumer complaints to the Commission.REF
If accurate, “surprise fees” must not be a big problem, because 2,000 complaints comprised just 0.58 percent of the 343,909 consumer complaints received that year.REF
The Administration contends that mergers and acquisitions by dominant tech firms are “undermining competition and reducing innovation.” According to the Fact Sheet, “Over the past ten years, the largest tech platforms have acquired hundreds of companies—including alleged ‘killer acquisitions’ meant to shut down a potential competitive threat,” and, “[t]oo often, federal agencies have not blocked, conditioned, or, in some cases, meaningfully examined these acquisitions.”
The Administration does not offer any evidence to support the “killer acquisitions” claim. It only references one study that focused exclusively on pharmaceutical companies, rendering it inapplicable to the tech industry.REF Regarding government oversight of mergers and acquisitions, the Hart–Scott–Rodino Act (HSR) requires proposed mergers of consequence to be reviewed by both the Federal Trade Commission (FTC) and the U.S. Department of Justice Antitrust Division.REF
In addition, the FTC has ordered Alphabet (including Google), Apple, Amazon, Facebook, and Microsoft to submit information about previously non-reported acquisitions that occurred between January 1, 2010, and December 31, 2019, including the terms, scope, structure, and purpose.REF FTC officials say that they will evaluate whether the HSR filing thresholds are adequate.
The Administration also accuses large platforms of accumulating “extraordinary amounts of sensitive personal information and related data.” This complaint ignores the fact that the collection of personal data by social media and other tech platforms begins with the voluntary cooperation of the individual consumer—and most sites allow users to customize their privacy settings. Most important, use of the platforms is voluntary, unlike the government’s vast collection of personal information.
In addition, the Administration attacks “large platforms” for taking unfair competitive advantage of smaller companies, claiming that
companies that run dominant online retail marketplaces can see how small businesses’ products sell and then use the data to launch their own competing products. Because they run the platform, they can also display their own copycat products more prominently than the small businesses’ products.
The Fact Sheet then cites a political document that summarizes a series of hearings by the House Subcommittee on Antitrust, Commercial and Administrative Law.REF A variety of critics have previously assailed this report as more propaganda than fact. For example, economist Alan Reynolds described it as “many pages full of newspaper references. Economics, however, is conspicuously missing throughout.… [T]he cited survey evidence only demonstrates the authors’ technological ignorance and economic illiteracy.”REF The Information Technology and Innovation Foundation characterized the majority staff report as “filled with analytical errors.”REF
The Administration also claims that restrictions on self repairs and third-party repairs of technology devices raise costs by restricting the distribution of parts, diagnostics, and repair tools. As with many other assertions, the Administration provides no concrete evidence to validate these claims. Instead, it cites a 2017 article on Vice.com and a 2019 article on Vox.com.REF Beyond the rhetoric, however, the issue of third-party repair involves serious issues, such as intellectual property, consumer safety, and cybersecurity—none of which is addressed in the Fact Sheet.REF
Banking and Consumer Finance
The Fact Sheet “encourages” federal agencies to provide “more robust scrutiny of mergers” in the banking industry, and claims that “excessive consolidation raises costs for consumers, restricts credit for small businesses, and harms low-income communities.” It then points out—correctly—that approximately 10,000 banks have closed during the past four decades. It states that “many of these closures are the product of mergers and acquisitions,” but provides no context for this trend.
It is true that the total number of U.S. banks has been shrinking for decades, as the data cited in the Fact Sheet show.REF However, the total number of banks in the U.S.— as with the total number of firms in any industry—does not, by itself, fully describe the level of competition in the financial sector, indicate the overall strength of the banking system, or reveal how well banks serve consumers. For instance, there were more than 25,000 banks in the U.S. prior to the Great Depression, but many of those banks were dangerously weak because they depended solely on the success of small local economies. Eventually, the harmful branching restrictions that spawned so many weak banks were relaxed and, in 1994, repealed.REF Thus, while the “right” number of banks at any given time is difficult to know, more is not necessarily better (or indicative of a more competitive banking sector).
The Administration also presents misleading information on federal agencies’ actions. While it may be true that “federal agencies have not formally denied a bank merger application in more than 15 years” (emphasis added), the Fact Sheet provides no details on why this may be the case or how many merger applications were voluntarily withdrawn. Yet, an article cited in the Fact Sheet does explain that between 5 percent and 18 percent of merger applications were voluntarily withdrawn between 2011 and 2018.REF Within the banking industry, it is widely acknowledged that applications are rarely formally denied because agencies regularly encourage applicants to withdraw their submission before it can be denied.REF
Evidence also reveals that federal agencies have increased regulatory roadblocks to creating new banks, and explicitly failed to approve numerous new bank charter applications. In 2009, regulators started requiring new applicants to submit seven-year business plans with evidence of capital sufficient to exceed the minimum required for all seven years, and mandated heightened supervisory monitoring for seven years (up from three years). After implementing these new rules, only 33 new applications were filed in 2009, and the Federal Deposit Insurance Corporation (FDIC) approved none of those requests to open a new bank.REF
Moreover, in 2008, before the financial crisis hit, 72 percent (101) of the new deposit insurance applications—a necessity for opening a bank—filed with the FDIC were not approved.REF More broadly, the White House ignores that the consolidation trend is at least partly driven by excessive federal regulations that increasingly burdened banks and would-be bankers—including the 900-page Dodd–Frank Wall Street Reform and Consumer Protection Act—with complex red tape and heavy compliances costs.REF
The Administration also ignores other contributory factors to consolidation, such as the proliferation of Web-based technologies that lessen the need for physical offices. Compared to four decades ago, banks can now more easily pool deposits across geographic communities and reach customers without as many physical locations. This change represents an improvement in productivity and bank safety, thus increasing access to banking services for millions of Americans. Unsurprisingly, the FDIC reports that nearly 95 percent of American households now have an account at either a bank or credit union, the highest rate since 2009 (when the agency first conducted such a survey).REF
The White House does cite one study supporting its claim that mergers and acquisitions have contributed to a reduction in small business lending, and another that suggests that consolidation has led to higher interest rates. However, the Administration ignores the broader evidence. For instance, one comprehensive review of the economics literature—covering over 150 studies dated after 2000—shows that although consolidation can adversely affect certain types of borrowers and depositors, other evidence reveals that it can have positive effects.REF The review also provides evidence that much of the recent merger activity has been driven by the desire to obtain “too-big-to-fail” status (to secure the associated federal subsidies), not by insufficient private competition.REF
Finally, the Fact Sheet claims that “even where a customer has multiple options, it is hard to switch banks partly because customers cannot easily take their financial transaction history data to a new bank. That increases the cost of the new bank extending you credit.” As evidence, the Administration cites a report from the Center for American Progress (CAP) that amounts to little more than opinion and advocacy. The CAP argues that high transaction costs (and opportunity costs) prevent people from switching banks, but provides no direct evidence.REF Not only does the CAP paper ignore the ease with which someone can open a bank account online,REF it even notes that the United Kingdom implemented the type of portability “reforms” that the authors favor, and that those ostensible improvements induced very little switching among customers. This evidence contradicts the Administration’s claim.
The Biden Administration has issued an executive order to establish a “whole-of-government effort” aimed at promoting competition in the U.S. economy. The EO contains nearly 100 initiatives for at least 12 federal agencies. The Administration argues that alleged declining competition, which it links to increased corporate consolidation, has caused many different economic problems, including higher consumer prices and lower wages. According to the White House, the EO is needed to “reduce the trend of corporate consolidation, increase competition, and deliver concrete benefits to America’s consumers, workers, farmers, and small businesses.”REF
To support its conclusions, the White House released a Fact Sheet that cites various reports and academic papers. It completely fails to make the Administration’s case. The Fact Sheet cites sources that do not support its claims, selectively reports certain statistics, misleadingly neglects contradictory statistics in those same sources, misrepresents results in some of those reports, and makes overly broad generalizations. The White House has not provided evidence that the U.S. economy is now less competitive than it was previously, much less that corporate consolidation reduced the overall level of competition in the U.S. and harmed America’s consumers, workers, farmers, and small businesses.
Gabriella Beaumont-Smith is Senior Policy Analyst in Trade and Macroeconomics in the Center for Data Analysis, of the Institute for Economic Freedom, at The Heritage Foundation. Elizabeth Hanke is Research Fellow in Labor Economics and Policy in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom. Diane Katz is Senior Research Fellow in Regulatory Policy in the Roe Institute. Norbert J. Michel, PhD, was Director of the Center for Data Analysis.