One emerging example of recent oligopolies in the United States is the housing market. There are a variety of reasons and explanations for the recent increase in housing prices, and oligopolies certainly aren't to blame for everything; however, one article from The Washington Post explains the possible and real effects of oligopolies on this market.
After the Great Recession, the surviving "home builders" have consolidated in a way that some economists believe has worsened the affordable-housing crisis. Their findings report that due to "dwindling competition," around 150,000 additional homes a year are not built because builders can produce fewer homes with higher prices. In the period from 2013-2017, home prices grew "more than twice as fast" as they should have as a result of the market's consolidation.
Other problems account for the development of the oligopolies, such as land scarcity and labor costs. Although many don't consider the housing market an oligopoly, the truth is that these oligopolies exist within specific locations, and most of these specific locations' developers were few in number and high in power. Most of these markets qualify today, on the Herfindahl-Hirschman Index, as "highly concentrated," whereas in 2006 they were mostly either "competitive" or "moderately concentrated."
How have these oligopolies developed so quickly? The majority of the problem lies in the fact that land is a scarce resources, and larger companies and developers have advantages as they can "hoard land for years and try to time the market," along with other tactics that keep them in power. Since land is scarce and expensive, companies that have been in power longer and have more resources are simply better prepared to face the costs of development. For the most part, therefore, it is simply easier for larger developers to keep up with the costs of zoning and building.
Source: https://www.washingtonpost.com/business/2019/10/17/economists-identify-an-unseen-force-holding-back-affordable-housing/
This is an interesting correlation between oligopoly and the pricing of a market. Your observation seems to suggest that a rise in prices is beneficial to the development of an oligopoly. Does this mean that every market with monopolistic competition, when faced with a shortage of supply and ever-increasing demand, would eventually become an oligopoly?
ReplyDeleteLiving in such a wealthy area of the country, this idea is very prominent to us. A house priced at $1 million in the Los Altos area are significantly smaller in square footage to one at Texas and it is because the scarcity of land and resources. In Texas, they have land for days so no one has to compete for a living place. In the Silicon Valley, everyone wants to live here but with limited land they have to drive up competition somehow.
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