Biden executive order unlikely to increase competition

On July 9, President Joe Biden signed an executive order to increase competition in the U.S. economy. Citing heavy consolidation, Biden emphasized that his executive orders will save Americans from the harm being caused by the lack of competition.

For decades, corporate consolidation has been accelerating. 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. This is true across healthcare, financial services, agriculture and more.

That lack of competition drives up prices for consumers. As fewer large players have controlled more of the market, mark-ups (charges over cost) have tripled.  Families are paying higher prices for necessities—things like prescription drugs, hearing aids, and internet service.

Barriers to competition are also driving down wages for workers. When there are only a few employers in town, workers have less opportunity to bargain for a higher wage and to demand dignity and respect in the workplace. In fact, research shows that industry consolidation is decreasing advertised wages by as much as 17%. Tens 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.

In total, higher prices and lower wages caused by lack of competition are now estimated to cost the median American household $5,000 per year.

Unfortunately, the evidence is lacking on his claims.

Big is not always bad

There is indeed some evidence –– albeit debatable –– that market concentration has risen in recent years. However, big companies are not necessarily always bad.

In a free market, companies grow by providing services that people value and are willing to pay for. Facebook, Amazon, Apple, and other tech companies are good examples. Not to mention, growth can mean lower costs as businesses take advantage of economies of scale.

That being said, some concentration could indeed be harmful to consumers. However, in areas like finance and health care, where consolidation has been shown to raise prices, government action has been the major contributor to such trends.

The Dodd-Frank Act, which Biden has always supported, for example, forced many small banks out of business. The rest consodoliated to survive. By imposing complex and costly regulations, Dodd-Frank hurt small community banks — the go-to line of credit for small businesses. Similarly, the Affordable Care Act has increased consolidation in the health care market in recent years.

The right way to increase competition

President Biden has some good ideas to foster much-needed reform. For example, the idea to limit occupational licensing, make drug importation easier, and allow hearing aids to be sold over the counter would save consumers money. But to be durable, these reforms need to be legislated by Congress. Some of the other reforms Biden is initiating, like occupational licensing, are better left to the states.

Biden’s executive orders also contain provisions heavily expanding government control over private businesses. These include antitrust laws, regulatory oversight on fees, net neutrality rules, and numerous others.

Indeed, the President is right that increased competition is a source of innovation and growth. But competition thrives under less government intervention, not more. Excessive rules hurt businesses and, ironically, lead to the consolidation that he is speaking against.

To foster competition, the president needs to urge Congress to implement policies that lower taxes and reduce the regulatory burden for businesses.