Pricing Power

The corporate mechanism behind crisis inflation — how concentrated U.S. sectors exercise pricing discretion across business cycles, and how crisis episodes convert that discretion into permanent margin expansion.

In April 2020, the spot rate for shipping a forty-foot container from Shanghai to the U.S. West Coast was approximately $1,500. By September 2021, the same rate had reached approximately $20,000. The increase was roughly thirteenfold over eighteen months. It was reported in the trade press as a consequence of pandemic-related supply chain disruption — port congestion, container imbalances, vessel capacity constraints, COVID-related labor disruption.

The increase was also reported, on the corporate side, as a record-setting earnings episode. Maersk, the Danish container shipping firm and the largest ocean carrier in the world, reported approximately $18 billion in net profit in 2021 and approximately $29 billion in 2022 — more than the firm’s cumulative net profit across the previous decade combined. The Mediterranean Shipping Company, MSC, reported similar margin expansion. CMA CGM, the French carrier, did the same. Across the ten largest container shipping firms, the 2021–2022 period represented the most profitable two years in the history of container shipping. The firms had not built new capacity. The vessels in operation were the same vessels that had been in operation in 2019. The labor force was approximately the same. The fuel cost structure was approximately the same. What had changed was the price at which capacity was being sold.

The ten largest container shipping firms operate in three alliances — the 2M Alliance, the Ocean Alliance, and THE Alliance — which together control approximately eighty percent of global container shipping capacity. The alliances coordinate vessel deployment, port rotations, and capacity planning in ways that have been investigated and approved by the U.S. Federal Maritime Commission, the European Commission, and the Chinese Ministry of Transport on the theory that the operational coordination is necessary for industry efficiency. The alliances do not, in the formal regulatory documentation, coordinate pricing. The alliances do not need to coordinate pricing. Three competitors, each of which is a member of an alliance with the others, observing one another’s published rate moves through the trade press in real time, can adjust pricing in parallel without any formal coordination at all.

This is what pricing power looks like in operation. The companion piece on the 2021–2022 inflation episode in this collection documents the operational evidence of margin expansion across multiple consumer-facing concentrated sectors during the same period. The companion piece on inflation narratives documents the four-decade attribution pattern that has structurally excluded sellers’ inflation from legitimate U.S. discourse. This article is about the structural mechanism itself: how concentrated-sector pricing power is constructed, how it operates across business cycles, how crisis episodes convert it into permanent margin expansion, and what institutional architecture sustains it.

Begin with the question almost no one in mainstream U.S. coverage asks: what is pricing power, and how is it constructed?

Pricing power is the discretion an individual firm has over the price at which it sells its goods or services. In the textbook competitive-market framework that organizes most U.S. graduate economics curricula and most mainstream financial press coverage, individual firms have no pricing power. Each firm is a price-taker in a market populated by enough competitors to produce a single market-clearing price that no individual firm can deviate from without losing volume. Pricing power, in this framework, is an anomaly — a temporary departure from competitive equilibrium that the entry of new competitors will discipline.

The empirical reality of contemporary U.S. concentrated sectors is different. The four largest beef processing firms in the United States — JBS, Tyson, Cargill, and National Beef — together control approximately eighty-five percent of U.S. beef processing capacity, according to U.S. Department of Agriculture data. The four largest pork processing firms control approximately seventy percent of U.S. pork capacity. The four largest poultry processing firms control approximately fifty percent of broiler chicken processing. In wireless telecommunications, Verizon, AT&T, and T-Mobile combined control approximately ninety percent of the U.S. wireless market following the 2020 T-Mobile/Sprint merger. In retail pharmacy, the three largest pharmacy benefit managers — CVS Caremark, Express Scripts (Cigna), and OptumRx (UnitedHealth) — together process approximately eighty percent of U.S. retail prescriptions. In premium and prescription eyewear, EssilorLuxottica controls a majority of the U.S. premium-eyewear market through ownership of Ray-Ban, Oakley, LensCrafters, Pearle Vision, Target Optical, and Sunglass Hut, along with vision insurance subsidiary EyeMed. In food retail, the four largest grocery chains control approximately fifty percent of U.S. grocery sales, with individual metropolitan areas routinely dominated by one or two chains with combined market share above seventy percent. In container shipping, as documented above, three alliances control approximately eighty percent of global capacity.

In each of these sectors, pricing power is not an anomaly. It is the operational architecture of the sector. Firms exercise discretion over price within ranges that reflect the cost structure, the elasticity of demand, and — critically — the price movements of their concentrated competitors. The exercise of pricing power does not require explicit collusion, which would be illegal under the Sherman Antitrust Act of 1890. It requires only that firms in concentrated sectors observe one another’s pricing decisions through public communications — earnings calls, industry trade press, regulatory filings — and adjust their own pricing in response. This is parallel pricing or tacit coordination, and it is the operational signature of contemporary U.S. concentrated-sector pricing.

Margin defense is the process by which firms with pricing power use moments of widespread price uncertainty to convert input cost shocks into permanent markups and defend the markups once costs ease. The mechanism does not require collusion; it requires only sector concentration. The 2021–2022 inflation episode provided the most recent and most thoroughly documented operational example. The mechanism has operated across multiple inflationary episodes. Its operational signature is consistent: input costs rise, concentrated firms raise prices by more than the input cost increase would justify, input costs subsequently ease, prices remain elevated, the gap between costs and prices is captured as expanded margin, and the expanded margin becomes the new baseline against which future pricing decisions are made.

The mechanism rarely operates alone. Its dominant pairing is margin defense plus price ratcheting (Family 2) plus monopoly tolling (Family 1) plus vertical squeeze (Family 1), with narrative laundering (Family 7) protecting the arrangement against contestation. This is a Family 1 + Family 2 + Family 7 signature, distinct from the signatures developed in earlier articles in this collection. Margin defense is the operational mechanism during crisis periods. Price ratcheting is the across-cycle mechanism that prevents prices from declining when costs ease. Monopoly tolling is the structural mechanism by which concentrated sectors charge access fees for participation in essential markets. Vertical squeeze is the cross-stage mechanism by which concentration in one stage of a supply chain is leveraged to extract rents from upstream and downstream stages. Narrative laundering is the discursive defense.

The four mechanisms operate together in observable patterns across sectors. In meatpacking, the four largest beef processors raised the wholesale price of beef during 2020–2022 by substantially more than the cost of cattle to the processors increased. The cattle ranchers — the upstream stage — received approximately the same price for their cattle in 2022 as in 2019, while the wholesale price of beef rose by approximately fifty percent. The downstream stage — retail grocers — passed approximately the full wholesale increase through to consumers. The intermediate stage — the four-firm processing oligopoly — captured the spread. This is vertical squeeze in operation: the upstream and downstream stages are in fragmented, lower-concentration markets; the middle stage is concentrated; the concentrated stage extracts rents from both directions. The Department of Justice’s 2020 and 2022 investigations of beef-pricing practices resulted in hundreds of millions of dollars in settlement payments without any structural separation of the four-firm oligopoly. The structural arrangement that produced the rent-extraction was preserved.

In container shipping, as documented above, the three alliances raised rates by approximately thirteenfold during 2020–2021, captured the spread as record-setting margin expansion, and have allowed rates to ease only as new vessel capacity has come online and as the post-pandemic demand surge has eased. The fundamental rate level remains elevated relative to the pre-pandemic baseline. The alliance structure remains intact. The Federal Maritime Commission’s 2022 Ocean Shipping Reform Act provided expanded enforcement authority over detention and demurrage charges but did not address the underlying alliance structure that produced the parallel pricing.

In premium and prescription eyewear, EssilorLuxottica’s vertical integration across the eyewear supply chain — owning the brands, the prescription chains, the sunglass retailers, and the vision insurance subsidiary — produces a price level for prescription eyeglasses in the United States of approximately three hundred to six hundred dollars per pair, against approximately fifty to one hundred dollars in markets with more fragmented retail-and-brand structures. In Japan, where the eyewear retail market is dominated by domestic chains like JINS and Zoff that operate without the U.S. vertical-integration architecture, complete prescription eyewear can be purchased for the equivalent of approximately fifty to one hundred dollars. The price differential is the operational measure of the rent extracted by the U.S. concentrated structure. The Federal Trade Commission has not taken structural action against EssilorLuxottica’s U.S. operations.

In wireless telecommunications, the three-firm structure has produced parallel pricing across carrier rate plans, family plan structures, device-financing arrangements, and add-on services. U.S. wireless prices are approximately twice the prices in major European markets on a per-gigabyte basis, despite comparable infrastructure costs. The 2020 T-Mobile/Sprint merger, approved by the Department of Justice over the objections of state attorneys general, reduced the U.S. wireless market from four firms to three. The post-merger period has documented the parallel pricing patterns the merger opponents had predicted.

In retail pharmacy, the three-firm pharmacy benefit manager oligopoly has produced rebate structures that extract rents from drug manufacturers, retail pharmacies, and patients simultaneously. The PBMs’ contractual arrangements with drug manufacturers — confidential rebates calculated as a percentage of list price — produce incentives for higher list prices, against which higher rebates are calculated. The patient pays cost-sharing based on the list price; the rebate flows to the PBM. The drug manufacturer, the patient, and increasingly the retail pharmacy each absorb portions of the rent extracted by the concentrated PBM stage. This is monopoly tolling in operation: a concentrated middle stage charges access fees for participation in an essential market, with the fees ultimately absorbed by the final consumer through the cost-sharing structure of the U.S. health insurance system. The Federal Trade Commission’s 2024 interim staff report on PBMs has documented the architecture without yet producing structural action.

These five sector vignettes share a common structural feature: a concentrated middle stage extracts rents from less-concentrated upstream and downstream stages, with the rents captured during crisis periods locked in through price ratcheting and defended through narrative laundering that frames the elevated price level as an inevitable consequence of supply or demand conditions rather than as the operational consequence of the concentration.

The structural pillars that produced contemporary U.S. concentrated-sector pricing power are five.

The first is the consumer welfare standard introduced into U.S. antitrust analysis by Robert Bork’s 1978 book The Antitrust Paradox. Before Bork, U.S. antitrust enforcement had operated on a structural-presumption framework: high market concentration was presumptively harmful, mergers that increased concentration were presumptively suspect, and structural remedies — divestitures, structural separation — were the default response. The Bork framework replaced the structural presumption with an effects test: a merger or business practice was anticompetitive only if it could be shown to harm consumer welfare, narrowly defined as price effects in a narrowly defined market. The effects test, applied through economic models of the merger’s predicted impact, became the standard analysis used by the Department of Justice and the Federal Trade Commission throughout the Reagan, Bush, Clinton, Bush, Obama, and Trump administrations. Each application of the test produced a permissive merger review process. The cumulative effect was the contemporary structure of concentrated U.S. sectors.

The second is the merger wave architecture. Between 1980 and 2020, U.S. firms executed approximately one hundred thousand merger transactions notified to the Federal Trade Commission and Department of Justice under the Hart-Scott-Rodino premerger notification framework, with cumulative deal value exceeding $30 trillion. The transactions were processed through a review framework in which the agencies challenged a small minority. The historical challenge rate has averaged approximately three percent of notified transactions, with the rate declining over time to approximately one percent in the mid-2010s. The remainder of transactions proceeded without formal challenge. The cumulative effect was the construction of the contemporary concentrated-sector structure through deliberate institutional decision rather than through inherent market dynamics.

The third is sector-specific regulatory capture. Each of the concentrated sectors documented above is regulated by a specific federal agency or set of agencies — the U.S. Department of Agriculture’s Food Safety and Inspection Service for meatpacking, the Federal Maritime Commission for ocean shipping, the Federal Communications Commission for wireless, the Centers for Medicare and Medicaid Services and the Drug Enforcement Administration for prescription drugs, the Federal Trade Commission for retail pharmacy. Each agency has developed institutional relationships with the regulated sector that produce, over time, the patterns of revolving-door employment, industry-staffed advisory committees, regulatory text drafted in cooperation with industry counsel, and enforcement priorities shaped by industry concerns that political-economy literature has named regulatory capture. The capture is sector-specific in form but consistent in operational effect: the regulatory architecture that could constrain concentrated-sector pricing power has been progressively shaped to accommodate the concentration rather than to constrain it.

The fourth is the SEC’s earnings call architecture, which structures the public communications through which concentrated-sector firms signal pricing intentions to one another and to the financial press. The earnings call format — quarterly, with prepared remarks by senior executives followed by a question-and-answer session with sell-side analysts — is mandated by SEC disclosure rules and structured by financial press coverage conventions. The format produces public communications in which executives discuss pricing strategy in detail. The communications are observable in real time by competitors. The competitors do not need to communicate with one another directly to coordinate pricing; they need only to listen to the earnings calls. The structural feature of the U.S. capital-markets disclosure regime that produces this signaling architecture is itself an institutional choice, not a natural consequence of capital-markets function.

The fifth is the financial press infrastructure that transmits the earnings-call signaling and frames the resulting pricing decisions as operational excellence. The financial press, as the companion piece on inflation narratives in this collection documents, operates within revenue-dependence relationships with the firms it covers. Its coverage of concentrated-sector pricing decisions is dominated by the perspective of capital allocators considering the firms as investment opportunities. The pricing decisions are framed as evidence of pricing discipline, operational efficiency, brand strength, or category leadership — all of which are euphemisms for the exercise of pricing power. The structural relationship between the financial press and the firms it covers is not collusive; it is institutional. Its cumulative effect is a public discourse in which the exercise of pricing power is consistently described in terms that obscure rather than clarify the structural mechanism at work.

These five pillars are mutually reinforcing. The post-Bork antitrust regime allowed the construction of the concentrated-sector structure. The merger wave architecture executed the construction. Sector-specific regulatory capture protects each concentrated sector from the regulatory constraints that could discipline its pricing power. The SEC’s earnings-call architecture provides the signaling infrastructure through which concentrated firms coordinate pricing. The financial press infrastructure transmits the signaling and provides the discursive cover. The architecture is institutional. It can be modified.

The beneficiaries of the contemporary U.S. concentrated-sector pricing architecture are the firms that exercise the pricing power, the asset-holders whose ownership of those firms appreciates through the resulting margin expansion, and the financial-services industry that intermediates the asset appreciation. Federal Reserve Distributional Financial Accounts data, as documented in the companion piece on the claim economy in this collection, indicate that the wealthiest ten percent of U.S. households hold approximately ninety percent of U.S. equities, with the top one percent holding approximately half. The margin expansion of concentrated U.S. sectors flows disproportionately to this asset-holding decile through equity appreciation, dividend payments, and the buyback architecture that transfers corporate cash flow into share-price appreciation. The wage earners of the same concentrated firms, the small-business operators in adjacent supply chains, the upstream cattle ranchers and downstream grocery cashiers, and the household consumers of the concentrated-sector products do not, in any operationally significant way, share in the margin expansion. The structural distribution of pricing-power rents in the U.S. concentrated-sector architecture is one of the most consequential and least-discussed distributional choices in contemporary U.S. political economy.

The burden falls in three places. It falls on households, particularly lower-income households, whose budgets are dominated by concentrated-sector purchases (food, healthcare, telecommunications, transportation, energy) and whose share of income absorbed by those purchases has risen as concentrated-sector prices have outpaced wage growth across the post-1980 period. Bureau of Labor Statistics Consumer Expenditure Survey data document that the lowest-income quintile of U.S. households spends approximately seventy percent of after-tax income on the categories where concentrated-sector pricing dominates — food, housing, healthcare, transportation, telecommunications, energy. The same categories absorb approximately forty percent of the highest-income quintile’s after-tax income. The structural incidence of concentrated-sector pricing power is regressive.

It falls on small businesses and on the broader productive economy. The downstream stages of concentrated-sector supply chains — independent grocers, independent pharmacies, independent telecommunications resellers, independent eyewear retailers, independent cattle ranchers — operate in lower-concentration markets and absorb the rent-extraction of the concentrated middle stages. Small-business margins in these sectors have declined across the post-1980 period as concentrated-sector pricing power has expanded. The broader productive economy absorbs the elevated input costs that concentrated-sector pricing produces, with downstream sectors passing through what they can absorb and reducing investment, hiring, and productive capacity expansion to the extent they cannot.

It falls on the public economy. The federal antitrust apparatus that could constrain concentrated-sector pricing power has operated under flat or declining real budgets throughout the post-1980 period, even as the merger volume requiring review has grown by orders of magnitude. The Federal Trade Commission and the Antitrust Division of the Department of Justice combined operate with approximately twenty-five hundred staff against the approximately one hundred thousand U.S. merger transactions executed during the post-1980 period. The asymmetry of institutional capacity between the concentrated-sector firms and the public agencies tasked with constraining them is the structural condition under which the post-Bork architecture has reproduced itself across electoral cycles.

The phrases doing the most work in defending the concentrated-sector pricing architecture are operational excellence, pricing discipline, category leadership, and brand strength. Each phrase frames the exercise of pricing power as an internal corporate accomplishment rather than as the structural consequence of sector concentration. Operational excellence directs attention to the firm’s internal management practices. Pricing discipline directs attention to the firm’s restraint in the face of demand pressure, with the implicit comparison being to less-concentrated competitors who lack the same restraint. Category leadership directs attention to the firm’s position relative to competitors, with the implicit framing being that the position was earned through superior execution rather than through structural concentration. Brand strength directs attention to consumer preferences, with the implicit framing being that the firm’s pricing power reflects consumer choice rather than sector structure.

Each of these phrases is, in specific applications, technically defensible. None is, on the operational record of contemporary concentrated-sector pricing, the dominant explanation for the pricing outcomes observed. The aggregate effect of the framework — multiple available euphemisms for pricing power, all directing attention away from the structural mechanism — is a public discourse in which the exercise of pricing power is consistently described in terms that obscure the institutional architecture producing it. This is narrative laundering in operation. It is reinforced by legitimacy shielding when alternative analyses are dismissed as anti-business, populist, or economically illiterate. The reception of structural antitrust analysis in mainstream U.S. financial press coverage during the post-2020 antitrust revival is a contemporary example of the mechanism in operation. Federal Trade Commission Chair Lina Khan, whose 2017 Yale Law Journal article Amazon’s Antitrust Paradox substantially influenced the post-2020 antitrust revival, was the subject of sustained financial-press coverage characterizing her enforcement posture as activist, ideological, or beyond the FTC’s institutional mandate. The coverage did not, in most cases, engage the substantive structural-economic analysis underlying the enforcement posture.

The counter-mechanisms the dominant frame rules out are well-established categories of public economic action. Antitrust enforcement and structural separation would address the concentration directly through merger blocking, divestiture, and structural separation orders. Price regulation and rate-setting would constrain the use of pricing power in essential sectors during periods of stress. Public production at scale would directly compete with concentrated private sectors in essential markets. Public risk pools for healthcare, retirement, and other essential domains would reduce the consumer exposure to concentrated-sector pricing in those domains. Public investment banks would direct credit to less-concentrated alternatives in essential sectors. None of these counters is hypothetical. Each is operational somewhere in the world, and several have operated in the United States in the past.

The first precedent is American and historical. The structural-presumption antitrust regime that operated from the 1890 Sherman Act through the late 1970s produced multiple structural separations of dominant firms. The 1911 Standard Oil dissolution divided the firm into more than thirty independent companies, several of which (ExxonMobil, Chevron, BP-via-Sohio) remain operationally significant a century later. The 1911 American Tobacco dissolution divided the firm into multiple independent companies. The 1956 AT&T consent decree restricted the firm’s entry into adjacent markets. The 1982 AT&T breakup, executed under the post-Bork legal regime but rooted in pre-Bork structural-separation doctrine, divided the firm into seven regional Bell operating companies plus a long-distance arm. Each of these structural separations was contested at the time and predicted by industry to damage the U.S. economy. The predicted damage did not occur. The structural separations are, on the operational record, among the most successful interventions in U.S. antitrust history.

The second precedent is American and recent. The Federal Trade Commission and Department of Justice 2023 Merger Guidelines, issued under the Khan and Kanter leadership of the two agencies, restored elements of pre-Bork antitrust analysis to the U.S. enforcement framework. The guidelines reintroduce structural presumptions for concentrated markets, restore consideration of labor-market effects in merger review, and incorporate analysis of vertical integration effects that had been substantially abandoned during the post-Bork period. The 2023 Guidelines were used to challenge transactions that would have proceeded without challenge under the prior framework — most notably the proposed Kroger-Albertsons merger, which the FTC successfully blocked in late 2024 when a federal court granted the agency’s requested preliminary injunction and the firms abandoned the transaction. The guidelines establish that the post-Bork framework is institutionally reversible.

The third precedent is foreign and recent. The European Union’s Digital Markets Act, in force since 2022, imposes structural requirements on designated gatekeeper firms in digital markets, including interoperability requirements, restrictions on self-preferencing, and limitations on data combination across services. The DMA represents a structural-presumption framework applied to digital sector concentration that the post-Bork U.S. framework had specifically excluded. The DMA’s enforcement record is early but operationally consequential — Apple, Google, Meta, Amazon, and Microsoft have each modified their European operations in response to DMA requirements. The DMA’s structural framework is an available model for U.S. action that has not been adopted.

The fourth precedent is foreign and recent. Mexico’s Federal Telecommunications Institute, established in the 2013 telecommunications constitutional reform, designated America Movil as a preponderant economic agent in 2014 and imposed structural restrictions including asymmetric regulation, asset divestiture requirements, and rate-setting authority over interconnection charges. The reforms substantially reduced Mexican mobile and fixed-line telecommunications prices in the subsequent decade. The IFT’s enforcement framework provides an operational template for structural antitrust enforcement against a single-firm-dominated concentrated sector — a configuration the U.S. post-Bork antitrust framework has not addressed at comparable scale.

The reframing is this: pricing power is not a natural feature of concentrated U.S. sectors. It is the operational consequence of an institutional architecture — the post-Bork antitrust regime, the merger wave, sector-specific regulatory capture, the SEC’s earnings-call communications structure, and the financial-press coverage conventions — that has been assembled, over four decades, by named actors making particular choices. The architecture produces a stable pattern of pricing-power exercise across business cycles, with crisis periods serving as opportunities for margin expansion that becomes permanent through price ratcheting. The pattern is reversible by deliberate institutional action.

The pricing power that produced the 2021–2022 inflation episode was not produced in 2021. It was constructed across the prior four decades through specific institutional choices that the U.S. discourse has not yet engaged at the structural level. The 2023 Merger Guidelines and the renewed FTC and DOJ enforcement posture during the same period represent the first substantial institutional response in forty years. The response has been contested in financial-press coverage, in litigation, and in the political process. Whether the institutional response will be sustained, expanded into structural separation orders for the most concentrated sectors, and complemented by the parallel public-economy interventions — public risk pools, public production at scale, sector-specific price regulation — is the structural question of the present moment.

What gets called inflation during a crisis episode is, in concentrated U.S. sectors, the visible operational signature of pricing power that operates continuously across business cycles. The crisis does not produce the pricing power. The crisis produces the public attention. The pricing power produced the price increases the public attention briefly observed. When the public attention turns elsewhere — as it has, in the post-2022 period — the pricing power continues to operate. The structural question for U.S. political economy is not whether the next crisis will produce another margin expansion. It will. The question is whether the structural architecture that converts each crisis into another upward ratchet of the price level will, before the next crisis arrives, be modified.

Infinite Economics covers the political economy of market concentration, the institutional architecture of U.S. concentrated-sector pricing power, and the structural antitrust and public-economy responses that the dominant framework has foreclosed. This piece is part of our ongoing investigation of pricing power, sector concentration, and the public-economy alternatives to a post-Bork antitrust regime.