- higher MAP, (as fewer firms may increase gws prices), and
- less productivity (if it reduces competition, raises barriers to entry, or encourages rent-seeking (ex lobbying)), or
- more productivity, (if there are EOS (ecs of scale), network effects, or R&D investment)
*productivity = output (gws) – inputs
PRODMA (product market) concentration
Concentration ratios (CR.n) represent the sales-MAS of the ‘n’ biggest firms in a market: a market can be the (whole=aggregate) economy, or granular sectors. Figures 5 and 6 report concentration ratios for the whole economy as the market:
FIGURE 6:
Concentration aggregated from five-digit SIC sectors
Figure 7 plots concentration ratios aggregated from the most granular industry definition (five-digit SIC) We present the median and mean CRN for the concentration level of these industries each year.
-We observe an increasing concentration trend across all measures over the period, and this is particularly strong for the median measure. In terms of levels, the mean always exceeds the median, which suggests that there is a tail of high-concentration industries.
-CR5: the median has a SALES-MAS of 15–20% among the top-five firms, and in the average(MEAN) they have 20–25 per cent of market share >> thus, there is nearly 1/5 of the MAS, held by a small group of firms.
– CR10, CR20 and CR50: we see higher MAS , as a larger number of firms is taken into consideration. For CR10, the MAS for the median five-digit SICindustry, increases from 20 to 25%. CR20 shows similarly sharp increases.
Concentration distribution across five-digit SIC sectors:
Figure 8 shows CR5 at the five-digit level. the distribution is shifting right over time >> This means more five-digit industries with higher levels of concentration. This is consistent with the growth in the mean and median concentration (in Figure 7 )
Figure 9 shows changes in the percentage (of the n.of industries) that have high and low CR5. ‘CR5: 0–20%’ represents low concentration industries; ‘CR5: 80–100%’ represents high concentration industries. as we see, low concentration industries fall from over 20–25 per cent of five-digit industries, to under 20 per cent of five-digit industries.
fig.9: Open in figure viewerPowerPoint Percentage of high and low CR5 industries, five-digit:
FIGURE 10:
In 2007, there is a discontinuity leading to a spike in high concentration industries. In 2007, SIC industrial classifications were updated from SIC 2003 to SIC 2007.
In antitrust cases, industries are often categorised based on the (HHI = total of squared MAS). The HHI is then used to classify industries: HHI values between 0 and 1,000 indicate low concentration industries, HHI values between 1,000 and 1,800 indicate medium concentration industries, and HHI values between 1,800 and 10,000 indicate high concentration industries. Figure 10 shows that between 25 to 30% of industries are high concentration and this has increased over the sample period. The level of moderately concentrated industries is stable at 15 per cent. The remaining 50–60 per cent of industries are low concentration
Business dynamism: entry, exit and net entry :
Entry statistics are one indicator of ‘business dynamism’. Net entry is an alternative indicator of competition, also called ‘business churn’. We determine entry as the first year that a firm is recorded as being active and records employees and turnover as non-zero. Exit is the first year the firm is recorded as being inactive, having been active the previous year
Figures 11 and 12 show that aggregate entry has a flat trend between 1998 and 2020, suggesting stable business dynamism.17 The fluctuations we observe are consistent with well-known characteristics of the business cycle. Entry and exit typically co-move, except in recessionary periods when entry declines and exit increases. Between 2008 and 2011, there was a fall in the number of firms entering and an increase in the number of firms exiting, so net entry became negative. as the stock of firms declines during recession, an individual firm’s ability to affect industry output rises, and the price elasticity of demand becomes more inelastic, which raises price setting ability, so price markups rise. This apparent decline in competition during recessions coincides with a higher concentration.
FIGURE 11 Open in figure viewerPowerPoint :
FIGURE 12 Open in figure viewerPowerPoint :
