The Evolution of U.S. Retail Concentration

TL;DR

This paper examines the rise in local and national retail concentration in the U.S. from 1992 to 2012, linking it to increased market power and retail margins.

Contribution

It introduces novel Census data analysis showing local concentration growth parallels national trends and highlights multi-market firm expansion as a key driver.

Findings

Local concentration increased alongside national concentration.

Multi-market firms drove most of the national concentration growth.

Increased local concentration explains 25-33% of retail margin rise.

Abstract

Increases in national concentration have been a salient feature of industry dynamics in the U.S. and have contributed to concerns about increasing market power. Yet, local trends may be more informative about market power, particularly in the retail sector where consumers have traditionally shopped at nearby stores. We find that local concentration has increased almost in parallel with national concentration using novel Census data on product-level revenue for all U.S. retail stores between 1992 and 2012. The increases in concentration are broad based, affecting most markets, products, and retail industries. We show that the expansion of multi-market firms into new markets explains most of the increase in national retail concentration, with consolidation via increases in local market shares increasing in importance between 1997 and 2007, and single-market firms playing a negligible role. Finally, we find that increases in local concentration can explain one-quarter to one-third of the observed rise in retail gross margins.