As President Trump takes office for the second time, a pressing question will be how to handle the Biden administration’s legacy of targeting large businesses. In 2021, President Biden issued an executive order on competition, launching an all-of-government effort to reverse, or at least stay, a century-long trend: the rising share of national output produced by large firms. The administration argued that this industry concentration leads to higher prices, reduced quality, fewer market entrants, and lower wages. It promised to stop this trend through stricter merger policies, new regulations on business practices, aggressive investigations, and price controls.
However, my recent research with Jakub Tecza shows this strategy rests on flawed assumptions and risks producing the very outcomes it seeks to avoid.
Yes, industry concentration has increased—but this trend reflects a more productive economy, not a broken one. Mergers and acquisitions (M&A) have a marginal impact on concentration, and rising concentration is largely a result of two factors: improving productivity and expanding regulation. Ironically, Biden’s regulatory efforts risk making concentration worse, not better. Large firms benefit from regulatory barriers to entry and economies of scale in compliance, leaving smaller competitors at a disadvantage.
Our study examined five potential drivers of industry concentration: productivity, regulation, M&A activity, imports, and information technology (IT). Although data limitations prevented us to showing causation, we did find that productivity is the primary consideration. Larger firms achieve economies of scale, allowing each worker to produce more and giving consumers more of what they want. In other words, concentration signals economic strength, not weakness.
Regulation, the second biggest factor, exacerbates concentration in multiple ways. Large firms can absorb the costs of compliance more easily than small ones, gaining a competitive edge. Regulatory barriers also reduce opportunities for “creative destruction,” a process where new firms can disrupt and replace established players. There are counter examples, such as the 1994 Riegle-Neal Act, an act of deregulation that encouraged industry concentration by allowing interstate banking and branching. But on net, more regulation means larger businesses.
Contrary to the Biden administration’s fears, our research found that mergers play only a minor role in concentration trends. Companies typically merge to achieve economies of scale or secure resources, as in T-Mobile’s acquisition of Sprint. The benefits of such mergers often manifest as higher productivity, not monopolies. Indeed a recent study at the Federal Reserve Bank of Richmond found industry concentration and monopoly control moving in opposite directions.
Imports, meanwhile, only slightly diminish domestic concentration. The link between imports and concentration appears to be that increased domestic regulation encourages imports. Domestic M&A activity is linked to imports. The causation could run in either direction, but given the Federal Reserve Bank of Richmond study, it seems most likely that M&A is a response to foreign competition. Notably, we found no meaningful relationship between IT investments and concentration—likely because IT’s impact is already reflected in productivity gains.
The Biden administration’s strategy reflects an outdated fear of large businesses—one rooted in the robber-baron era of the 19th century, when public anger over industrial giants helped spur the first antitrust laws. Even in the 21st century, some worry that large firms could stifle democracy or use their power to create monopolies and barriers to entry. But today, these concerns don’t align with economic realities. A policy approach that assumes big is bad misunderstands both the causes and effects of concentration.
The real danger is that a heavy-handed approach could backfire. By suppressing mergers, over-regulating industries, and discouraging growth, these policies risk stifling innovation and productivity—undermining the very competition they aim to promote. True competition arises from creative destruction, superior management, and leveraging strategic assets, not government mandates.
The bottom line for the Trump administration is clear: Continuing the Biden-Harris campaign against big business would harm the economy. America thrives when companies and workers are free to innovate and compete on the global stage. Instead of waging a regulatory war against large firms, the new administration should embrace market-oriented policies that reward efficiency, encourage competition, and empower businesses to succeed—big or small.