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The Year Ahead 2019

Disruption, Concentration, and the New Economy

The rise of Big Tech has ushered in broad structural economic changes that academics and policymakers are only just beginning to understand. Still, some trends are already discernible, and they raise urgent questions about the future of competition, innovation, and inequality in the United States and around the world.

CHICAGO – The growing dominance of leading technology firms has occasioned an intense debate about the tradeoffs between efficiency and market power, while raising questions about what the changing structure of markets will mean for innovation and the distribution of wealth in the future. The annual Jackson Hole Economic Policy Symposium in Wyoming, organized by the Federal Reserve Bank of Kansas City, offered an excellent set of papers and commentators on the subject.

With respect to efficiency and competition, there is already cause for concern. John Haltiwanger of the University of Maryland has shown that the entry rate of new firms into the market has fallen sharply, particularly over the past 12 years; and Jay Ritter of the University of Florida has demonstrated a similarly steep decline in annual initial public offerings.

These findings suggest that young firms are increasingly agreeing to be acquired, rather than trying to grow into large public firms. At the same time, exit rates within many industries have remained relatively flat despite an increase in productivity dispersion. In other words, weaker producers aren’t being knocked out of the market, implying a lack of dynamism in many sectors of the economy.

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