Seller Concentration
Economics Division
ID-4113M
Industrial Organisation
Level 2
2010/11
‘Seller concentration levels are of interest on both theoretical and public policy grounds’. Discuss.
Market structure plays an important role in any industry. Examining the market structure is essential for firms to perform well and behave rationally. The key characteristics of market structure include the number and size of firms, the existence and height barriers to entry and exit, and the degree of product differentiation. Seller concentration refers to the number and level of distribution of firms producing a particular type of output (Needham, 1978). Empirical evidence shows that market concentration level determines business behaviour; therefore seller concentration is one of the most often used indicators of industry structure and receives a lot of attention from economists and public policy makers. Hence, this essay is going to discuss seller concentration levels as interest on both theoretical and public policy grounds. It will explain the indices and determinants of seller concentration giving real world examples with a focus on consequences of seller concentration on markets and implications for policy making.
In order to clearly understand the importance of seller concentration, it is essential to look at the different ways it is measured. First of all, seller concentration can be measured at two levels. The first is known as aggregate concentration. Aggregate concentration is measured as the share of n largest firms in the total sales, assets or employment (Lipczynski, Wilson and Goddard, 2005). A good example of aggregate concentration is the share of the five largest Member States in the European Union, value added. The average share for the non-financial business economy as a whole reached 72.8 % in 2007 (Euro Stat, 2011). The highest concentration level was for the manufacture of office machinery and computers, and the lowest for the manufacture of food and beverages.
ID-4113M
Industrial Organisation
Level 2
2010/11
‘Seller concentration levels are of interest on both theoretical and public policy grounds’. Discuss.
Market structure plays an important role in any industry. Examining the market structure is essential for firms to perform well and behave rationally. The key characteristics of market structure include the number and size of firms, the existence and height barriers to entry and exit, and the degree of product differentiation. Seller concentration refers to the number and level of distribution of firms producing a particular type of output (Needham, 1978). Empirical evidence shows that market concentration level determines business behaviour; therefore seller concentration is one of the most often used indicators of industry structure and receives a lot of attention from economists and public policy makers. Hence, this essay is going to discuss seller concentration levels as interest on both theoretical and public policy grounds. It will explain the indices and determinants of seller concentration giving real world examples with a focus on consequences of seller concentration on markets and implications for policy making.
In order to clearly understand the importance of seller concentration, it is essential to look at the different ways it is measured. First of all, seller concentration can be measured at two levels. The first is known as aggregate concentration. Aggregate concentration is measured as the share of n largest firms in the total sales, assets or employment (Lipczynski, Wilson and Goddard, 2005). A good example of aggregate concentration is the share of the five largest Member States in the European Union, value added. The average share for the non-financial business economy as a whole reached 72.8 % in 2007 (Euro Stat, 2011). The highest concentration level was for the manufacture of office machinery and computers, and the lowest for the manufacture of food and beverages.
References: Euro Stat (2011). Key figures on European business with a special feature on the recession. Available at: http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-ET-10-001/EN/KS-ET-10-001-EN.PDF (Last acceded at 3rd of May, 2011) Goetz G Competition Commission (2011) .Available at: http://www.competition-commission.org.uk/ (Last acceded at 3rd of May, 2011). International Labour Office (2004). Employment effects of mergers and acquisitions in commerce. . Available at: http://www.ilo.org/public/english/dialogue/sector/techmeet/tmmac03/tmmac-r.pdf (Last acceded at 3rd of May, 2011) Lipczynski J, Wilson J. and Goddard J., (2005). Industrial organization. 2nd edition. Harlow: Pearson Education Needham D OFcom (2011). The Communications Market 2009. Available at: http://stakeholders.ofcom.org.uk/market-data-research/market-data/communications-market-reports/cmr09/ (Last acceded at 3rd of May, 2011) Stigler G.J The Independent (2011) EU approves Orange and T-Mobile merger. Available at: http://www.independent.co.uk/news/business/news/eu-approves-orange-and-tmobile-merger-1914347.html. (Last acceded at 3rd of May, 2011) TNS Global (2011) (Last acceded at 3rd of May, 2011) United States General Accounting Office (2004) Effects of Mergers and Market Concentration in the U.S