Entry costs and business concentration

More from the excellent German Gutierrez and Thomas Philippon, this time along with Calum Jones, on the trends with entry costs and business concentration in the US. I had blogged earlier from Gutierrez and Philippon about how low interest rates has contributed to business concentration and rise in firm surplus 

The reality of business concentration, increase in firms' profit margins, and weaker investment in precisely those industries which have become more concentrated is now widely acknowledged. But its exact causes are a matter of debate. 

Business investment in terms of ratio of net investment to net operating surplus for US non-financial corporates has fallen while that in respect of net buybacks has risen. 

They examine the implied capital gap relative to the Q ratio for the most and least concentrating industries and find that the capital gap is coming from concentrating industries.

The summary of their findings,

Entry has decreased in the US economy, and markets have become more concentrated. We find that entry costs shocks have played an important role and that they are related to entry regulations... our main finding is that time-varying competition has had a significant impact on macro-economic dynamics over the past 30 years. For instance, absent the decrease in competition since 2003, consumption would be 5 to 10 percents higher by 2015 and the capital stock would have been 1 to 3 percent higher by 2015... By 2015, the cumulative under-investment is large at around 10% of capital.