The Structure of the Economy

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Many of the industries and markets are oligopolies. They are dominated by a small number (and small percent) of the competitors.

There are many ways to measure this. One is the Pareto Ratio -what percent of total sales is accounted for by a small percent of companies? Or the four company concentration ratio - what percent of total industry sales are accounted for by the four largest companies? More sophisticated methods are built on some form of an exponential power law. On version might be - how many very large companies are in the industry, based on some high, minimum sales. Now half the minimum sales. How many companies are in this range? What is the relationship between a lower sales range and a greater number of companies compared to the first group. The shape of the decreasing curve depends on the exponent.

This does not mean that the industry is stagnant, that the same large companies will remain the largest companies. Over time they will be replaced by new innovative companies using new technology ro better exploitation of supporting networks and global supply chains. Or a company can grow through acquitions. Or merger with another large company. 

Another example might by the S&P 500, the 500 publicly-owned companies measured by market value (the total value of all outstanding shares). Lots of replacement of 10 biggest over time. Replacement of companies over time. Get Data from change in S&P 500.

While the relative size of companies can change and large companies can be replaced, the structure of the industry may stay approximately the same.

List of dominant companies that seemed like they would dominate forever (or at least a long time). Usually dethroned by companies with new technology or better strategy (Cosco and Walmart) or organizational innovation. Adopting new technology of input suppliers, including IT companies.

Recent studies indicate that many industries and market in U.S and Europe are becoming more concentrated. Mergers and acquisitions in the U.S. are valued at about $1 trillion a year. Global M&A is around $4 trillion a year. In addition, large companies in computer technology and healthcare invest in smaller companies with buying them. Goggle, Microsoft, Nvidia, Apple and other big computer/software tech corporations have made dozens of acquisitions each. Microsoft is currently bankrolling the leading AI firms, including OpenAI; total investment may run over $1 trillion (?).

Superior growth relative to industry growth, increasing market share.

The above suggests some of the reasons some companies are big. Economists often cite "economies of scale," without very much analysis or data. The idea is that there is a feedback mechanism - as output grows, unit costs go down and a fall in price increase unit sales. Or this "virtual cycle" might be triggered by an increase in demand, leading to greater output and lower unit cost.


Look at structure of different types of industries and markets:

Input markets. Supply chain. (bilateral oligopoly)

Consumer products and services.

Commodity markets.







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