By Bradford Tuckfield, a researcher and technology consultant.

The year 2015 was a bad one to own an independent pizza restaurant. Total sales for independent pizzerias (here meaning pizza restaurants with fewer than ten locations) were down 5% from 2014, and almost 2% of independent owners went out of business during the year. The large, corporate pizza chains, by contrast, had a great year, with sales increasing a few percent, and the number of units climbing 7% year-over-year. This is a phenomenon that we’ve all seen before—corporate giants use their capital and connections and other advantages to crush their mom-and-pop competitors.

Increasing market concentration is a regrettably common trend in the history of American business. Tens of thousands of small-time corner stores owned by prosperous individuals have become thousands of Walmart locations, all owned by a single mega-rich family. Thousands of independent family farms have been swallowed up in the land portfolios of a few mega-owners like Bill Gates (who owns 275,000 acres) or Ted Turner (who owns 2 million acres).

Decades of academic research have made clear that high market concentrations have negative effects that ripple throughout the world economy, which, in the end, hurt all of us. One highly cited study compared wages in areas with different levels of market concentration, and found that “going from the 25th percentile to the 75th percentile in concentration is associated with a 5 percent… to 17 percent… decline in posted wages.” Another study estimated that a 50% increase in market concentration was associated with wages and earnings decreasing anywhere from 1% to 10%. Another recent study in the highly respected Quarterly Journal of Economics reports that labor’s share of GDP fell by close to 10% in the US between about 1980 and 2010, explaining the fall as due to the rise of giant “superstar” firms against which smaller operations can’t compete.

Market concentration has downsides beyond the purely economic. When an independent general store goes out of business and its owner has to take a job as a manager at a Walmart, his daily may tasks change very little: he is still managing inventory, serving customers, hiring and firing, and so on. But he has traded autonomy for dependence, and freedom for servility. He has to ask for days off (or beg for them) instead of setting his schedule himself. He almost certainly has to spend hours attending mandatory corporate trainings that veer between wasteful nonsense and absurd propaganda. Even if his salary and benefits have improved, an owner and a free man has become a servant.

In a nation rooted in independent freeholders, market concentration has helped explain why a mere 10% of Americans are self-employed, with Big Business having crushed many of the dreams of the other 90%.

Amazingly, independent pizza shops have reversed the trend toward greater market concentration. In 2023, PMQ (a pizza industry organization) reported that sales at independent pizzerias jumped 10% that year, with 12% growth in the number of units. Large chains, by contrast, saw a 1.5% drop in sales, with units remaining essentially flat. So how did they do it?

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One reason for market concentration is that large firms enjoy economies of scale that their smaller would-be competitors don’t. When an independent restaurant owner has to pay $20,000 for building and maintaining a payment and order management system, it hits his bottom line hard. The same $20,000 cost of a necessary service is much easier to absorb for an owner of a chain restaurant with 20 franchises, and it is infinitesimal for a Fortune 500 giant.

Adding up the numerous fixed costs of even a business as simple as a restaurant, including ordering and payment systems, marketing materials, and legal costs yields a number high enough to be manageable for larger firms but to nearly bankrupt smaller, independent owners. One study found that small restaurants on average spent fully 18.4% of their revenues on general and administrative costs like these, while larger restaurants needed to spend only 14.6% on average. Those percentage points can make all the difference in an industry where profit margins are razor-thin, often hovering around 1%. For large chains with multiple locations, these administrative costs could go down even further as a percentage of revenue; size and scale matter in the restaurant business just like they do in so many other businesses.

But these economies of scale need not spell doom for small businesses. If a pizzeria in Duluth, Minnesota, cooperates with a pizzeria in Nashville, Tennessee, they can split the $20,000 cost of building an order management system, meaning each needs to contribute only $10,000. Bringing more pizzerias into the cooperation decreases the costs even further until they approach zero.

This type of direct cooperation between independent owners is rare, but much more common is an independent organization serving as a hub offering easy-to-replicate services cheaply and widely. Today, this type of offering often takes the form of SaaS (software as a service). Pizzerias have a whole menu of options for relatively cheap startup-focused services for payments, marketing, customer relations, and other needs. One startup called Slice provides these types of services tailored specifically to pizzerias: they’ll design your pizza box, make your website, answer your phones, and more in exchange for a flat percent of order volume. Slice can offer these services cheaply because they are repeating them so often. Essentially, Slice possesses the economies of scale and cost advantages of a giant superstar firm, and can turn a profit passing them on to its clients. This exchange enables small business owners to reap the benefits of larger franchises without being giants themselves, helping reduce market concentration. Since 2015, entrepreneurs in the pizza industry have used services like those of Slice to aid their never-ending efforts to decrease the large chains’ outsize and ever-growing power.

Against the odds, and against a seemingly unstoppable tide of history, independent pizzeria owners reversed the market concentration trend in their little industry. The payment company Stripe highlighted the pizzeria industry in its 2024 annual letter, claiming that the ability of SaaS companies to offer franchise-level services at scale to independent pizzerias was partially responsible for independent pizzerias’ recent ability to increase their share of the “pie.”

Stripe didn’t use the term, but what they described in their letter is essentially the provision of public goods. Just like the pooled resource of taxpayers fund the building of roads that pizza delivery drivers rely on, some startups are acting to provide the “public goods” of phone ordering and pizza box design for independent restaurant owners. Slice and other startups pool the funds of a broad base of customers rather than the public at large, but the idea and the effect are the same.

The provision of public goods can have many effects. Some public goods make it easier for smaller, independent owners to set up and run businesses. Anything that helps small business owners get in the game and stay there can help to decrease market concentration. In turn, decreasing market concentration tends to increase wages and the labor share of GDP as well as investment. Beyond that, it allows for the economic independence and self-reliance of owners, and it ensures that we’re not ruled by oligarchs.

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Market concentration is determined by much more than just economies of scale and public goods. Consumers collectively can shape the market however they wish, and concentration is due in part to consumer choices. Every time someone buys a meal at McDonald’s instead of seeking out a local burger place (for consistency, convenience, lower price, lower risk, or other considerations), it contributes to the market concentration we see now. Grassroots consumer-focused efforts to encourage support of local businesses, like the “Keep Austin Weird” slogan of my hometown, have had very limited success. In general, consumers seem to be too price-sensitive and attracted to uniformity and convenience to overthrow the largest would-be monopolies. Consumers may have to make some sacrifices in the form of paying higher prices or even just taking time to learn about local alternatives if they want to support their business-owning neighbors and be part of the fight against market concentration.

Another important ingredient is the attractiveness, to an individual worker, of small-scale ownership compared to a corporate middle-management position working for a billionaire. How many men would want to make (say) $45,000 per year running an independent pizzeria when they could make $65,000 per year as a manager of a Pizza Hut branch, with less risk, less effort, less earnings volatility, no necessity of personal debt, and fewer late nights and weekends at work? Just like consumers may have to pay higher prices to fight market concentration, entrepreneurs will need to make sacrifices too.

The partially reversed market concentration among pizzerias represents a tiny win in a sea of losses. If we are ever to decrease market concentration more broadly, it will require the long, dedicated efforts of policy makers, consumers, and independent business owners together. If we can succeed even partially, we can create a world where independent business owners thrive, where wages and investment increase, and where self-reliant, free people control their own destinies.

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An Unlikely Comeback