The economic disruptions of the past year and a half caused small businesses to lose an average of 11 percent of their revenues. This was not the case for the globe’s big corporations, though. According to a McKinsey study of 5,500 “big, highly productive” U.S. and European companies, all surveyed firms reported that they experienced no declines in sales during the pandemic.

Although large companies had already been overtaking their smaller rivals before 2020, economists say that the pandemic widened the gap between big and small even further. Most small businesses have spent the past year and half scrambling with supply chain problems, employment issues, falling foot traffic, and overall decreases in sales. Big companies, on the other hand, had the resources to reconfigure their business models, pivot into new markets, and invest in research & development initiatives. As a result, the net profit margins of companies in the S&P 500 are up by about 11 percent from before the pandemic. 

One method for measuring the growing dominance of big companies is through industry concentration, the ratio that compares the sales of a particular market’s top four firms with their top 20 competitors. As a result of the pandemic, the top four companies now account for an average of 60 percent of sales across numerous industries. It’s possible that federal regulators could pursue antitrust cases against major firms that are potentially curbing innovation through their immense size. At the same time, others warn that breaking up big companies could lead to unforeseen consequences. “A tremendous amount of innovation is coming out of these firms,” said Prasanna Tambe of the Wharton School at the University of Pennsylvania. “The policies you put in place can have adverse implications for a lot of people.” 

Questions:

1. How did large companies manage to succeed during the pandemic as small businesses struggled?
2. Do you think that federal regulators should take steps towards breaking up potentially monopolistic corporations? Why or why not?

Source: Tom Fairless, “Heavyweight Companies Enjoy Outsize Rewards as Economy Rebounds,” The Wall Street Journal, August 1, 2021.