Question

In economic terms, concentration is a measure of how much of a business sector’s sales are controlled by the largest companies. Explain two reasons why economists and, especially, the Federal Trade Commission (FTC) are concerned about increasing concentration of sales in business sectors.

Answer 1

Increasing concentration of sales in business sectors leads to creation of monopolies appropriating unfair profits. It will create barriers to entry to new companies which may not be able bear the very high costs if entry and may lack technologically. Even if there isn't a monopoly, it may lead to collusion among few oligopolists who will charge higher prices and prevent entry of new firms. Another issue with such concentrations is that due to increasing returns to scale, it will not enable investment in those sectors outside the particular region, which will lead to uneven development across regions and creation of excessive residential settlements around that particular area where the industries are concentrated.