Inflation and Corporate Market Power: Lessons from Recent Crises

Benoît CŒURÉ * President, Autorité de la concurrence (French Competition Authority). Contact : bureau.presidence@autoritedelaconcurrence.fr.This article is based on a presentation given on September 28, 2023, at the invitation of the Breizh Macro Club of the Economics Department of the University of Rennes, and the roundtable of the OECD Competition Committee on November 30, 2022. The author would like to thank Agnès Bénassy-Quéré for her comments. The opinions expressed in this article are his own.

Economists and central bankers have discussed the responsibility of businesses in the inflation surge of 2022-2023. By raising their sales prices, companies may have contributed to the spread, and even the amplification, of the cost shock. Over the long term, structural changes can have strengthened the role of companies (as opposed to workers) in driving inflation, but in the short term, the link between market power and the transmission of cost shocks is ambiguous. Larger companies do charge higher prices, but they are also more able to absorb temporary shocks. In general, “profitflation” did materialize in 2002-2023, but it seems to have been a temporary phenomenon, less pronounced in France than elsewhere in Europe. In 2024 and beyond, as energy prices normalize, wages rise, and inflation gradually returns to 2%, it will be important to closely monitor the return to normal corporate margins and to avoid downward rigidities that would sustain inflation. Competition policy can play a useful role in identifying sectoral rents and punishing behavior likely to contribute to price increases.

“When the facts change, I change my mind, and you Sir?”, John Maynard Keynes is quoted as having said after the 1929 crisis. The inflationary crisis of the early 2020s has now compelled economists to take a fresh look at the causes of inflation.In the 2010s, inflation was low or very low in the developed economies, forcing central banks to deploy new instruments – large scale purchases of public and private securities, conditional loans, and negative interest rates. For the most part, economists attributed this weakness essentially to macroeconomic mechanisms, such as the trend decrease of the natural rate of interest, the weakness of mechanisms that transmit economic activity to prices, as well as international factors and, in the eurozone, repeated crises1.In contrast, the surge in prices after the double shock of lockdown and the war…