The Great Reversal | Thomas Philippon

Summary of: The Great Reversal: How America Gave Up on Free Markets
By: Thomas Philippon


Welcome to the summary of ‘The Great Reversal: How America Gave Up on Free Markets’ by Thomas Philippon. Through this insightful book, we embark on a journey to explore the transformation of America’s competitive market policies and the shift in market concentration. We will delve into the origins of the European Union and its strategies in handling competition and market policies. Throughout the summary, we investigate the effects of changing market practices in sectors like digital access, healthcare, air travel, and the financial and tech industries. The book reveals how a decline in antitrust enforcement and the rise of lobbying have contributed to a deterioration of competition in the United States, compared to its European counterparts.

US Free Market Triumphs

The US government deregulated various industries between 1970 and 1990, setting an example of how free markets lead to maximum consumer gains. The deregulation led to an increase in competition, leading to benefits such as lower prices, increased production, higher employment, and investment, ultimately improving the standards of living. The reforms reflected bipartisan support and were successful in making the US a hub of low-priced goods and services.

The Evolution of EU Competition Regulations

The European Union’s (EU) approach towards market concentration issues and competition regulations has undergone significant changes. This transformation can be attributed to the EU’s origins and the pursuit of its central regulatory authority. In the early days, the EU was established based on America’s strategy of deregulating markets and fighting concentration to encourage competitiveness. Over time, the EU established robust and independent institutions to ensure that all member countries had an equal say in regulatory decisions. The EU paved the way for low trade and investment barriers and introduced unique rules to promote a level playing field. EU regulators are known for being tougher than their US counterparts when assessing market dominance resulting from mergers. The EU’s continued focus on competition regulations has been instrumental in promoting healthy competition and ensuring that no market player enjoys a monopoly.

Concentration: The Negative Impact on the US Economy

The United States’ lack of focus on competition has led to a decline in many markets, resulting in higher prices and limited choices for consumers. The pattern of mergers, entry and exit barriers, and greater markups due to market power has hurt US consumers because of the lack of competition. The cost of digital access, medicines, and health care in America is higher than in other countries. The growing concentration in the airline industry resulted in less competition, higher prices, and patchy service levels. This rise in concentration has created market power arms race, which consistently benefits the executives while harming the consumers.

Banking and Technology

The financial sector should have reduced its percentage share of GDP due to technological advancement, but it didn’t. Instead, technology enables faster trading connections and automated speculative trading. The EU has passed the General Data Protection Regulation, giving people ownership of their banking data, conveying stronger regulatory independence. After the 2010-2012 crisis, financial supervision moved to the EU level, which weakened the lobbying power of some EU banks over their governments. Misguided regulations create barriers to new entrants, preventing further reduction of the financial sector’s percentage share of GDP.

Tech Giants and Lobbying

Large tech companies are increasingly lobbying governments due to concerns around data protection and antitrust regulations. The EU’s General Data Protection Regulation has been particularly impactful, constraining the behavior of companies like Facebook and Google. Amazon’s concentration and market power also pose potential issues for consumers. These companies have been known to engage in “killer acquisitions,” acquiring infant tech companies before they become competitors. Despite their dominant presence, the new tech behemoths are no more profitable or innovative than previous corporate superstars, and their economic footprint is less impressive.

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