Part II
Distribution and Services

The relative importance of distribution in the U.S. economy--the wholesale and retail trades taken together--has not changed much since the 1950s. In terms of the value of output, distribution today accounts for little more than the 15 percent share that it accounted for earlier.

Over time, the frequency with which tight oligopoly is found in distribution has diminished to such an extent that the sector can be characterized as effectively competitive, although exceptions can easily be found, especially in smaller local markets or in the distribution of specialized products. The vertical restraints that are found in some channels of distribution are of concern, but in the motion picture industry vertical restraints appear to promote economic efficiency.

The service sector of the U.S. economy has grown substantially since the 1950s. Financial and nonfinancial services together accounted for nearly 30 percent of the value of output in the 1950s and today account for about 40 percent. Financial services (which include insurance and real estate) account for about half of this relative growth. Services account for well over half of total employment today.

Overall, there is more effective competition in the service sector today than there was in the 1950s. The numerous instances of industry deregulation, along with a variety of antitrust actions, have accounted for the bulk of this increase in effective competition. Particularly striking examples can be found in the communication, financial services, and transportation subsectors.

Competition in six service industries--airlines, retail commercial banking, health insurance, hospitals, local telephone service, and microcomputer platforms--is examined in the studies that follow. In the transportation subsector, deregulation has brought lower fares and better service to the airline industry, yet airlines wield an unexpected degree of market power and there have been calls for renewed government intervention. In retail commercial banking markets, performance has repeatedly been shown to be better when concentration is lower, raising concern about effective local competition as interstate banking continues to grow. Because the design of health insurance programs strongly affects the utilization (and cost) of medical services, the most rapidly growing programs in recent years have been those that succeed in containing costs. Also in the health sector, the pre

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