Industrial concentration in the US economy has been a persistent theme over the past 3 decades.  Corporate profits’ share of GDP has shifted up to a higher level compared with any other time in the post-war period.

Source: Bloomberg, Macrobond, Variant Perception

The total number of large companies in the US has not changed since 2000.

Source: Bloomberg, Macrobond, Variant Perception

More pricing power for corporates, without the benefit of globalization lowering costs, is a bad recipe for consumer price inflation.  Previous ECB papers looking at EU data have found that “higher product market competition reduces average inflation rates for a prolonged period of time”.

Investing in companies operating in concentrated industries can offer:

  1. Protection in an inflationary environment (more pricing power to protect profit margins)
  2. Exposure to “quality” factors (concentrated industries can act more rationally, allowing for better return on equity)

 

Get the full picture at variantperception.com.