market concentration models
DESCRIPTION
Brief outline on HHI and concentration ratios and how it relates to UK supermarkets.TRANSCRIPT
Market Concentration
Outline the main measures of industrial concentration and discuss their relative merits in summarising the features of the numbers and size distribution of firms likely to be associated with market power, explaining which you think is the best measure.
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Hall & Tideman
Unambiguous results
Independent of the size of industry
Scale 0-1
Principle of transfers
Proportional increases/decreasesDecreasing function of number of firms
Four Firm Concentration Ratio
Highly Concentrated
Highly Competitive
Medium
0-50%
50-80%
80-100%
Four Firm Concentration Ratio
30%
18%
17%
12%
77%
Market Share
4 Firm Concentration Ratio
Source: Kantar World Panel. March 2012
Four Firm Concentration
‣Easy to calculate‣Requires little data‣Simple to understand
Positives Negatives‣Ambiguous‣Ignores other firm’s market share‣Does not Satisfy all of Hall & Tideman’s factors
Herfindhal Hirshman
34%19%15%10%5%5%5%4%2%1%
= 1938
Market Share HHI
34²+19²+15²+10²+5²+5²+5²+4²+2²+1 ²
Highly Concentrated
Highly Competitive
Medium
1000-1800
1800-2500
2500+
HHI
‣Satisfies all of Hall & Tideman’s properties‣Result changes as market share changes or each firm
Positives Negatives
‣Ambiguous- what does 1938 mean?‣Needs complete data
Problems with both 4 firm ratio and HHI
Figure 1: Using the HHI method. Figure 2: Using the four firm concentration ratio method.
Problems with both 4 firm ratio and HHI
•Conflicting information•Impact of foreign companies•Do not take into account regional distributions of firms•Accuracy of data