BNP Paribas AM: Superstar firms – getting out of hand?

The surging growth of superstar firms look set to persist and their increasing market dominance could exacerbate already mounting societal divisions.
  • New technologies have led to a concentration of corporate power as the winners win big and losers are left by the wayside
  • The phenomenon of superstar firms and corporate power is undoubtedly part of the explanation for disruption at the ballot box
  • If the next wave of technological change exacerbates these tensions, political institutions may be unable to cope with the consequences.

In the post-crisis years, rising corporate profits have been a feature of the economic landscape. Strong and recurring profits are, however, specific to a relatively low number of superstar firms that are increasingly dominant in every sector of the economy. The phenomenon is not limited to the few, much discussed mega-tech industries captured under the FAANG acronym.

Taking a disproportionate share of profit

In a recent video recorded at BNP Paribas Asset Management’s Investment Forum, Jan De Loecker, professor of economics at KU Leuven and visiting professor at Princeton, discussed the rise of superstar firms and some of the implications of this development, including the consequences for labour markets, and by extension for investors and policymakers.

The trend is characterised by industries becoming more concentrated over time and companies attaining a large market share with relatively few workers (thanks to the application of new technologies). As they take the ground away from under the incumbents, these companies take a disproportionate share of economic profit. According to a recent McKinsey report, superstar companies are distinguished by the following features:

  • They capture a greater share of income and pull decisively away from the following pack
  • They exhibit relatively higher levels of digitisation and greater skilled labour and innovation intensity
  • They are more plugged into global flows of trade, finance, and services
  • They have more intangible assets than peers.

Read a fuller analysis of the likely future social and economic impacts of superstar companies.