The coronavirus pandemic has significantly strengthened the market power of dominant firms, which could drag on medium-term growth and stifle innovation and investment, the International Monetary Fund (IMF) said on Monday in a new research paper.
Key indicators of market power are on the rise, including price markups over marginal costs, and the concentration of revenues among the four biggest players in a sector, the IMF study said.
IMF said that part of this was due to increased bankruptcies as the pandemic caused competition to fall away.
However, the research paper did not identify specific companies, but considered that dominant technology firms are the biggest beneficiaries of the pandemic, as they are the sector most influencing market power.
IMF added that the emergence of artificial intelligence models and data-based pricing as an alternative to cash payments contributes to increasing the concentration of market power in the sector and creating difficulties for regulators.
“Due to the pandemic, we estimate that this concentration could now increase in advanced economies by at least as much as it did in the 15 years to end of 2015,” IMF Managing Director Kristalina Georgieva said in a blog post accompanying the paper.
“Even in those industries that benefited from the crisis, such as the digital sector, dominant players are among the biggest winners.”
IMF pointed out that the companies that caused turmoil in the market, which replaced the existing companies two decades ago, have become dominant players who do not face the same competitive pressures at present.
According to the research these agencies need guarantees that consumers will be able to use more than one platform.
The rise of artificial intelligence and pricing models based on data instead of monetary payments were further concentrating market power and creating difficulties for regulators, the IMF said.
The major tech companies concluded 2020 with a significant increase in the market value of their shares, with a total of $3.4 trillion.