How Concentrated is the U.S. Advertising and Marketing Services Industry? Myth Versus Reality

Abstract

We analyze changes in concentration levels in the U.S. advertising and marketing services industry using data from the U.S. Census Bureau's quinquennial Economic Census and the Service Annual Survey. These data, heretofore largely ignored, allow us to redress some of the measurement problems surrounding estimates found in the existing literature. Firm level concentration, as measured by the Herfindahl–Hirschman Index (HHI), varies across the sectors comprising the industry, but all are within the range generally considered as indicative of a competitive industry. The data available allowed HHI to be calculated for the period 1977–2002 in the case of advertising agencies and for 1997 and 2002 for the other industry sectors. At the holding company level, the four largest organizations account for only about a quarter of the industry's total revenue, a share that changed little over the period 2002–2008, but one that is approximately half of estimates frequently cited in the trade press. The persistence of a diverse and relatively unconcentrated size structure appears quite consistent with other research on the underlying economics of this industry.