The largest companies are increasing their dominance of industry market share as the U.S. economy becomes more consolidated.

In 91 of the 157 primary industries tracked by S&P Global Market Intelligence, the five largest U.S. companies by revenue combine for at least 80% of total revenue among publicly traded companies in their respective industries, up from 71 industries in 2000. The domestic market power of the biggest five companies has increased in 105 of those industries and decreased in just 38, though foreign competition in certain sectors, notably tradable manufactured goods, is not accounted for in the study. The increased concentration came as the number of U.S. public companies tracked by Market Intelligence fell to 4,947 in 2021, from 7,887 in 2000, driven by trillions of dollars of mergers and acquisitions.

The data highlights the debate over the effects of the trend. On one side is the argument that growing monopoly power stifles competition and productivity in the U.S. economy, a view largely shared by federal legislators and regulators pursuing their own measures to block new deals by large companies like Microsoft Corp. On the other, some economists point to the emergence of hyper-productive "superstar" companies as the primary reason for increasing market power.

"What could be driving a monopoly? One, you get a bunch of people in a room that collude and extract profits — that's the 'robber baron' scenario. The other is a very, very productive firm ends up dominating the industry," said Sharat Ganapati, assistant professor of International Economics at Georgetown University.

Market leaders tighten their grip

The high-profile market dominance of tech giants such as Alphabet Inc. and Meta Platforms Inc. has forged an alliance between the warring Republican and Democratic members of Congress who are working on new legislation to tighten regulation of their activities. Ever more concentrated market power in the U.S. economy, however, extends far beyond search engines and social media.

The publishing industry has seen the biggest increase in market concentration this century, as the top five companies — led by News Corp. — account for 94.8% of the revenue earned by publicly traded companies in the industry, up from 47.7% in 2000. Amazon.com Inc.'s rapid growth has also resulted in a sharp increase in market concentration in the internet and direct marketing retail industry, to 94.2% in 2021 from 53.8%.

"What you see is persistent and higher profit margins across sectors, which you wouldn't expect if there was competition," said Matt Stoller, director of research at the American Economic Liberties Project, a nonprofit group advocating for stronger U.S. federal and state antitrust laws.

Some industries have become less consolidated, notably specialized real estate investment trusts, where the share of the market leaders has declined to 57.6% from 87.3% in 2000. Still, the movement has largely been in the other direction.

Industries with the most consolidation have experienced the fastest productivity gains, according to Ganapati's 2021 study of price data from 1972 to 2012.

"If you look at advertising products, it does seem like that's exactly what's happening. Facebook and Google are a duopoly but that sector is more productive than it used to be," Ganapati said. "They're just more efficient at finding eyeballs and viewers than the previous newspapers and TV stations were."

So-called superstar companies had increased market concentration by achieving high profits and a low cost of labor compared to their sales, according to a 2017 study by the National Bureau of Economic Research.

Consolidation breeds concentration

However, the superstar explanation has been refuted by those pointing instead to excessive mergers and acquisitions facilitated by decades of lax regulation.

"It is not true that the productivity performance is that amazing. It's good but it's not amazing," said Thomas Philippon, an economist at the New York University Stern School of Business and author of The Great Reversal: How America Gave Up on Free Markets.

While Walmart Inc. in the 1990s was a true example of a superstar, increasing its revenues as a portion of GDP and delivering lower prices and high productivity, Apple Inc. and Alphabet were not achieving anything more than companies like International Business Machines Corp. and Microsoft had in their prime, Philippon said.

"Amazon I would agree is a superstar story, for many of the others I don't think it's really true," Philippon said. Sectors such as telecoms and airlines "where there is just no superstar story, it's purely mergers and lack of entry [to the market] and that is it."

Before inflation reared its ugly head, the long period of historically low interest rates facilitated a deluge of dealmaking that peaked in North America at $2.387 trillion in 2021, before rising interest rates saw the value of total deals slump by 41.4% in 2022, according to S&P Global Market Intelligence data.

In a number of industries, there was a correlation between increased market concentration and M&A activity.

Rampant M&A among health providers

One of the biggest increases in market concentration this century is in health insurance. The revenue market share of the top five managed healthcare companies — providers of healthcare and health insurance — grew to 99.4% from 71.9% between 2000 and 2021. In that time, numerous acquisitions reduced the number of public companies in the industry to 10 from 30.

In 2000, Aetna Inc. was the market leader with revenues of $26.82 billion, ahead of UnitedHealth Group Inc. and PacifiCare Health Systems Inc. By 2021, UnitedHealth was top of the pile with revenues of $287.6 billion, buoyed by the acquisitions of at least five of its competitors, including PacifiCare Health Systems.

Elevance Health Inc. was not listed in the sector by S&P in 2000 but, aided by acquisitions of four companies that were in the top 15 in 2000, it is now the second-largest player, with revenues of $138.6 billion.

Regulators took notice of the extent of the consolidation. The U.S. Justice Department blocked a $34 billion merger between Humana and Aetna in January 2017, arguing the deal would have left seniors and low-income families facing more expensive and lower-quality health insurance by reducing competition in the private Medicare Advantage market.

However, in late 2018 the DOJ approved a $69 billion deal for Aetna to merge with CVS Health Corp., ignoring opposition from the American Medical Association.

The Affordable Care Act attempted to encourage smaller companies into the sector, but it failed to do so. Extensive M&A activity has kept new entrants from breaking into that market, Philippon said.

"The more we look at it, the more we see that M&A activity is very negative for competition in the healthcare sector," Philippon said.

Regulators step up

The tech antitrust bill, held up by the 2022 midterm elections, is designed to stop Big Tech companies like Apple and Amazon from favoring their own services. It would represent a reversal of a long-held laissez-faire attitude of regulators, where the Justice Department investigated just 2.4% of the mergers reported to it on antitrust grounds in 2018, compared to 13.6% in 1978.

Under former President Donald Trump, the first measures were lined up for the Big Tech companies, while Trump also blasted pharmaceutical giants for price gouging. President Joe Biden then loaded the antitrust agencies with aggressive anti-monopolists, most notably U.S. Federal Trade Commission Chair Lina Khan and Jonathan Kanter, who leads the Justice Department's antitrust unit.

Since then, regulation is starting to step up. The FTC moved to block Microsoft's takeover of gaming company Activision Blizzard, the largest M&A deal in 2022.

"Enforcers are bringing cases and want to bring more," said Stoller of the American Economic Liberties Project.

However, it is future regulation that matters, not undoing the mistakes made in Big Tech, Philippon said.

"Putting the toothpaste back in the tube, well, that doesn't work," Philippon said. "We want to make sure that we don't make the same mistakes for the next wave of innovation that comes. And I think that could happen."