Superstar Firms

Watching Amazon take home two Oscars last night brought home the point that they are a juggernaut, a massive business capable of throwing its weight behind all sorts of new businesses.

It turns out these superstar firms, not robots, may be the most important economic issue right now.

This piece from the Economist argues that taxing robots is a bad idea but figuring out how to deal with these superstar firms who are accumulating much of the profits in our economy is a good idea. Here’s the money quote:

A new working paper by Simcha Barkai, of the University of Chicago, concludes that, although the share of income flowing to workers has declined in recent decades, the share flowing to capital (ie, including robots) has shrunk faster. What has grown is the markup firms can charge over their production costs, ie, their profits. Similarly, an NBER working paper published in January argues that the decline in the labour share is linked to the rise of “superstar firms”. A growing number of markets are “winner takes most”, in which the dominant firm earns hefty profits.

Something to ponder.