Herfindahl-Hirschmann Index Research Articles

Determining the Level of Market Concentration in the Construction Sector—Case of Application of the HHI Index

Background—competitive conditions are often distorted in the construction sector, therefore this affects the market position of all participants. This paper seeks to find the tools for properly assessment of participants by Herfindahl-Hirschmann index (HHI) and to identify what parameters have the greatest impact in the competitiveness of the construction sector. Methods: in this article the DEMATEL method was used whereas tool for assessing the balance of market concentration as it may help to determine factor with the greatest influence on a firm’s HHI. Results in this work showed how different parameters affect each other and their impact on a value of a firms’s HHI. When the parameters are determined, they can be useful for assesment of mergers their influence on the HHI and alteration of the market’s power balance. Conclusions—The calculation of the HHI by using the DEMATEL method allowed to check the empirical implementation check of the multicriteria assessment method, on the market power of business entities, operating in the distorted market conditions of the construction sector.

The effect of COVID-19 on revenue diversification, profitability and risk of banks in Zambia

The aim of this study was to evaluate the effect of the COVID-19 pandemic on revenue diversification and performance of banks in Zambia. The study was quantitative in design. Herfindahl Hirschmann Index measures for each bank to account for diversification between interest and non-interest activities were constructed, while the Risk Adjusted Return on Average Assets to measure bank profitability and the Z-Score to measure bank income volatility were computed. SPSS’s One-way repeated measures ANOVA was then used to analyse panel data from 16 of the 18 commercial banks in the country. The study concluded that there was no statistically significant difference in bank revenue diversification following the outbreak of COVID-19 in Zambia. With respect to bank performance, the study found that there was a statistically significant increase in bank profitability as measured by RAROAA in the aftermath of the pandemic. Similarly, the study found that there was a statistically significant increase in bank income volatility following the COVID-19 pandemic. Although bank profitability increased in the pandemic era, income volatility also increased thereby, exposing banks in the country to insolvency risk. The policy implication is that the Bank of Zambia should encourage banks to diversify their non-interest income sources to enhance their capacity to withstand major disruptions caused by natural and man-made disasters.

Export concentration and diversification impact on economic growth in the developed and developing countries of the world

There is much evidence that export diversity has a positive effect on economic growth, but there is some evidence that the concentration of exports may be also related to economic growth. The paper is dedicated to the relationship between export diversification and economic growth in developed and developing countries for 25 years (1996-2020) and 10 years (2011-2020). Correlation between concentration index (Herfindahl-Hirschmann Index), diversification index (modified Finger-Kreinin measure of similarity in trade) and economic growth was studied to confirm or deny the statements concerning positive or negative influence of export diversification and concentration on economic growth. The results of the study show that concentration index is lower in developed countries and does not varies much over time. While developing countries show higher magnitudes of this index and higher volatility level of this index and its relationship to the world business cycles. Level of export diversification is higher in developed countries, which show more similar export structure to the world pattern comparing with other national economies. Diversification index dynamics in developed and developing countries was getting closer to each other in 2012-2020 and now they are almost the same, though export diversification level of developed countries is a bit closer to the world export pattern comparing to the developing countries index. The findings show that in developing countries export concentration index has sufficient correlation with their GDP growth rates in both periods. That means the more key goods they sell the higher GDP growth rate they get. There is no long-time influence on economic development of these states according to this lagged correlation study of 1996-2020 period. Study based on 10-year period show sufficient 1-year lagged correlation rate, but the hypothesis concerning lagged positive impact of export concentration of economic development of these countries during the last decade needs proof. Developed countries have weak or moderate correlation between export concentration and GDP growth. Hence, developing countries mostly concentrate their export on a few primary goods but there is a need of additional research to find out if they use this money to develop other industries. Eventually there are different economies in these groups and some of them have different exports patterns and development models. Correlation analysis of the relationship between diversification index and GDP growth in 25-year period has shown weak or rather moderate association that does not give us possibility to make an assumption concerning the sufficient impact of export diversification on economic growth. However, in 10-year study we observe high correlation between these data in developing countries, especially in 5-year lag study. If in case of developing countries we observe positive relationship, analysis of developed countries indices shows negative relationship that confirms the statement about role of export diversification in economic growth of developed counties and export concentration - in developing economies. The more their export pattern deviates from the global structure (which is rather diversified) the higher their growth level is. Therefore, their export consists mostly of a few products. Negative relationship between diversification index and GDP growth in developed countries confirms the well-known statement that export diversification should promote economic growth. Lag dynamics in these cases needs additional studies. The list of issues of the following research also includes the search for a model of the nonlinear relationship between export diversification indices and growth rates in economies of different levels of development. The study has been also focused on the transition economies group, which has shown results more similar to those of developing countries comparing with developed economies. Export concentration index of transition economies is higher than in developing countries and more volatile; export diversification index is much bigger comparing with developing and developed economies. We state that these results reflect existing primary product export strategy of transition economies. The highest concentration and diversification indices are observed in countries that export energy resources. As a result of the study, the statement that the diversity of exports has a positive effect on economic growth was confirmed. The study has revealed that in developed countries economic growth usually are associated with diversified export basket. The study also showed that over the past 25 years, a developing economy to provide growth did not necessarily need diversified export. Number of countries have shown consistent economic growth driven by export of primary products.

DYNAMICS OF MUTUAL TRADE BETWEEN UKRAINE AND THE RUSSIAN FEDERATION IN THE CONTEXT OF CONFLICT’S IMPACT ON NATIONAL SECURITY: A CONCENTRATION-BASED APPROACH

The purpose of the is to summarize and present the results of the study of economic prerequisites for the situation when trade between the aggressor (the Russian Federation) and the victim (Ukraine) was not stopped despite the conflict as well as to assess the dynamics of this trade in the context of indicators of national economic security of Ukraine. Methodology. The study is based on the analysis of International Trade Center data on exports and imports of Ukraine and the Russian Federation and mutual commodity flows for 2002-2019. In addition, the Herfindahl-Hirschmann index and the Linda index were calculated to determine the level of concentration of commodity and geographical structure of foreign trade. To assess the impact of the external sector on the level of economic security of Ukraine, indicators regulated by national legislation were evaluated such as economy openness, export coverage ratio of imports, times; share of the leading partner country in total exports of goods, share of the leading partner country in total imports of goods, share of the leading commodity (commodity group) in the total volume of goods exports, share of leading goods (commodity group) excluding energy imports in total imports of goods, share of raw materials and low degree of industrial export processing in total exports of goods, share of imports in domestic consumption, terms of trade index (price). Results of the survey showed that The Russian Federation was the largest trading partner, and remains a significant participant in Ukraine’s foreign trade operations today. At the same time the objective process of reducing the importance of the Russian Federation in the export-import trade of Ukraine had begun long before 2014. Despite the fact that the level of danger in the foreign sphere has decreased to a certain extent, such an improvement occurs against the backdrop of the impossibility of completely terminating trade and other economic relations with the Russian Federation. Practical implications. Based on the analysis, the areas of overcoming risks in the external sphere should be recognized: strengthening the capacity of the domestic market, including the implementation of infrastructure renewal programs for transport facilities and military-industrial complex, stimulating foreign investment in mechanical engineering; stimulating foreign investment in high-technology activities; implementation of energy efficiency programs; simplifying administrative and tax conditions for the provision of service as a substitute to commodity trade. Value/originality. Data on concentration level of foreign trade of Ukraine and the Russian Federation and on level of foreign economic component of national economic security of Ukraine.

Models of television market power in Germany and Croatia

This paper analyses the development of the television (TV) markets in Germany and Croatia from previous times of monopoly to the current situation of oligopoly. This paper presents trend data pertaining to the market shares of each TV channel, allowing for the calculation of market concentration indicators (concentration ratio C3 and the Herfindahl-Hirschmann index) on two levels: the level of channel and the level of the group. This demonstrates the difference in the fall of market concentration - despite the increasing number of channels and a significant decrease in the level of concentration on the level of the channel, the concentration of the group level decreases at a much slower rate. Using annually recorded data, this paper estimates eight trend models for market concentration in the German and Croatian TV markets. In both countries, three leading groups control 80 to 90% of the entirety of the TV market. Similarities in the German and Croatian TV markets are characteristic of the oligopolistic market structure, in which there are three main players and a larger number of smaller participants.

Bank Concentration and Financial Risk in Jordan

The main aim of this paper is to investigate the relationship between bank concentration and bank risk in the Jordanian banking industry from 2005 to 2016. While controlling for bank fundamentals and business cycle, we used two measurements to measure bank risk (Z-score and Non-performing loan ratio) and three measurements of bank concentration (Herfindahl–Hirschmann Index, Concentration Ratio and the Lerner Index). We applied the two-step Generalized Method of Moments (GMM) to analysis this relationship between concentration and risk. The empirical evidence shows bank concentration has a positive relationship with risk measured using non-performing loan ratio, and a negative relationship using Z-score. This suggests greater market power leads to greater risks, which in turn supports the concentration-fragility theory.

Impact of consolidation of cases on post-operative outcomes for index pediatric surgery cases

BackgroundThe effect of the consolidation of neonatal pediatric surgical cases to limited surgeons within a hospital is unknown. We elected to model the distribution of complex neonatal procedures using an economic measure of market concentration, the Herfindahl-Hirschmann Index (HHI), and study its effect on outcomes of index pediatric surgical operations. MethodsWe used data from 49 US children's hospitals between 2007 and 2017 for the following procedures: congenital diaphragmatic hernia repair (CDH), esophageal atresia and tracheoesophageal fistula repair (EA/TEF), and pull-through for Hirschsprung disease (HD). Mixed effects logistic regression modeling was used to adjust for salient patient characteristics to determine the effect of HHI on in-hospital mortality, condition-specific one-year re-operation, and one-year unplanned readmissions. ResultsA total of 2270 infants were identified who underwent surgery for the three conditions of interest. On multivariable analysis, increasing HHI was not associated with differences in mortality or condition-specific re-operation within the first year. A decrease in the number of unplanned readmissions at highly concentrated centers was seen for HD (RR 0.8 CI (0.69–0.97), p = 0.02) and CDH (RR 0.4 CI (0.28–0.71), p < 0.001). ConclusionsPediatric surgical specialization did not affect mortality or condition-specific re-operation. However, it did decrease the number of unplanned readmissions following CDH repairs and pull-throughs for HD. Study designRetrospective Cohort Study. Level of EvidenceLevel II.

QUANTIFYING THE ENERGY SECURITY OF SELECTED EU COUNTRIES

This paper examines the energy security of a selected group of EU countries. The study covers period 2006-2017 and is done for selected group of countries – Germany, France, Italy, Poland, Netherladns, United Kingdom and Slovakia. The primary used methodology is the z-score standardization. In order to obtain an index of greater complexity, we extended this methodology by incorporating Herfindahl-Hirschmann index (HHI) values for natural gas imports. Our findings suggest, that, among the largest energy consuming countries in the EU, Italy came as the country with the highest level of energy security index (ESI) as it benefitted from improved security of Supply. France ESI slightly decreased due to worsening indicator of economic availability. Poland and Slovakia both suffered from low advancements in the are of environmental acceptability. The complexity of the solved problem caueses undesired consequences, as development of ESI index deteriorated after German nulear phase-out. The paper clearly ducuments there there is not a single way how to approach enhancing a country’s energy security.

Сутність конкурентоспроможності в банківському секторі: стан і проблеми

The article is aimed at closer defining the content of the concept of «bank competitiveness», as well as analyzing the status and problems of ensuring a competitive environment in the banking system of Ukraine. The essence of banking competition was researched and a critical analysis of approaches to understanding the concept of «bank competitiveness» was carried out. Under the concept of «bank competitiveness», it is proposed to understand the integral characterization, which will reflect the real and potential opportunities of the bank to create and promote competitive products and services that meet all customer requirements, occupy and maintain stable positions in the banking market. The analysis of the competitive environment in the banking sector of Ukraine was carried out. The distribution of net assets of banks by groups: State-owned, foreign, private and separately PrivatBank is also analyzed. The assessment of the level of concentration in the banking sector was carried out by calculating the Herfindahl-Hirschmann Index by the level of total and net assets, as well as by the market of deposits of individuals. According to the identified dynamics, an unambiguous conclusion was made that the banking sector of Ukraine is low-concentrated. In general, the analysis of the competitive environment showed positive tendencies and an increase in the competitiveness of banks. The problems that continue to adversely affect the level of competitiveness of banks are allocated as follows: significant proportion of the State-owned banks; problems in lending to big business, as well as the generally low level of capitalization of Ukrainian banks compared to foreign credit institutions; the insufficient number of products and services offered by banks compared to foreign banking markets.

Commercial Bank Performance and Credit Risk in Albania

Abstract The banking sector is a complex system composed of a large number of stakeholders that interacts in a non-simple way continuously and which plays the key role in economic development of each country. The economies of developing countries like Albania are characterized by high demand for credit due to increasing investment. The revenues are even higher when the risk is greater. Of the high related risk, crediting leads to high returns. Credit risk is one of the most important types of risk in the banking sector that affect the bank performance, as it exhibits loss probability because of the failure of debtor to fulfill its obligations to bank. In June 2016, the level of non-performing loans in Albania appears in 24.4% of total loans, representing the major obstacle to the development and performance of the banking sector in Albania. The purpose of the estimable model outlined in this section is to capture the effects of macroeconomic, bank specific factors and Herfindahl-Hirschmann index (HHI) in the industry of bank performance. We also include a range of bank-specific variables that have been used in previous empirical studies that examine drivers of bank performance. A recent decline in revenue was observed due to higher provisioning expenses, which reduce banks’ profits. To identify factors affecting bank profitability, we have got to study those factors like bank-specific (internal) factors, industry specific and macroeconomic (external) factors. The internal factors that influence profitability are expressed in terms of efficiency, productivity, competition, concentration, soundness, safety and profitability. Industry specific factor is market concentration, while macroeconomic factors are Gross Domestic Product (GDP), Inflation Rate, and Real effective exchange rate (REER). In this paper, we will test whether lending decisions of all banks operating in Albania exhibit moral hazard. The study carried out an empirical investigation of the quantitative effect of credit risk on the performance of 16 commercial banks in Albania organized quarterly over the period of 14 years (2002-2015).

LNG import diversification and energy security in Asia

Asia's share of global demand for natural gas has increased from 12 to 21 per cent since the turn of the century, and the overall consumption has more than doubled. At the same time, there is a widening gap between regional natural gas demand and supply, with increasing reliance on imports. In 2017, Asian importers absorbed 72 per cent of globally traded liquefied natural gas (LNG). Their LNG import dependence is forecast to grow significantly over the coming decades. This paper explores major Asian importers' approaches to LNG import diversification between 2001 and 2017 and explains why patterns of LNG imports differ across countries and over time. The focus of the paper is on five largest LNG importers in the region: China, India, Japan, South Korea and Taiwan. The paper utilises the Herfindahl-Hirschmann index (HHI) of market concentration to evaluate LNG import diversification across the five countries. The analysis contributes to a growing body of literature that evaluates various aspects of energy import diversification in the context of broader energy security strategies. Findings suggest that all countries have improved their LNG import portfolios, although there is significant temporal variation across countries. Reflecting on the relationship between energy security and growth, the paper concludes by outlining policy implications for regional energy policymakers.

How Does Advertising Depend on Competition? Evidence from U.S. Brewing

The relationship between market structure and advertising has been extensively studied, but has generated sharply opposing theoretical predictions, as well as inconclusive empirical findings, likely because of severe endogeneity concerns. We exploit the 2008 merger of Miller and Coors in the U.S. brewing industry to examine how changes in local concentration affect firms’ advertising behavior. Well-established regional preferences over beer brands, and the sharp increase in concentration from the merger, make this an excellent setting to analyze this question. We find a significant positive effect of local market concentration on advertising expenditures: a 100-point increase in the Herfindahl–Hirschmann Index measure of concentration increases advertising per capita by about 5%. Our findings shed light on how and when firms choose to deploy advertising. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2889. This paper was accepted by Eric Anderson, marketing.

Evaluation of hub-spoke airport networks in Sumatra island, Indonesia to increase efficiency of air transportation

Kualanamu International Airport is the busiest airport in Sumatra. In 2015, it served 8 million passengers and 41.6 thousand tons of goods for international and domestic flights. Hub-spoke networks are optimized when generally having a transport efficiency of at least 49-52% as well as providing air service in a wide geographic area and to many destinations. The aim of this study is to analyse the hub-spoke airport networks based on the Herfindahl-Hirschmann Index (HHI) to increase air transport efficiency in Sumatra Island. This study uses data from cargo production and couple’s flights from 10 airports in Sumatra Island for domestic flight route pairs and 6 airports for international flight route pairs. The results of the study show that route networks in Sumatra Island in existing conditions have not developed with the hub-spokes concept. The HHI analysis, indicates 2 hubs for domestic flights and 1 hub (Kualanamu) for international flights. Kualanamu International Airport and Hang Nadim International Airport were indicated as hub airports in Sumatra Island for domestic flights. The efficiency of air cargo transportation through the system (2 hubs and 8 spokes) results in a transport efficiency at 68.37%, which is still far above the efficient range at 49-52%.

СПОЉНОТРГОВИНСКА РАЗМЕНА СРБИЈЕ И ЗНАЧАЈ АГРАРНОГ СЕКТОРА

The foreign trade of the Serbian economy is characterized by a large deficit and unfavourable structure. The importance of the agrarian sector in total trade is reflected in the constant positive trade balance and increasing participation, particularly in export. The aim of the paper is to analyze the basic characteristics of foreign trade of Serbia, as well as to point out the importance of the agrarian sector in the period 2005-2014. In the first part of the paper are analyzed trends of export, import, and the level of openness of Serbian economy. In the following part the structure of export and import is discussed, and the concentration index presented, or the Herfindahl-Hirschmann index, as well as the diversification index which indicates the difference between the structure of Serbian export and import and the international average. In addition to these indicators, the revealed comparative advantage index was calculated. The analysis of foreign trade of Serbian overall economy indicates a significant presence of agricultural and food products in its structure, particularly in export, and confirms that the agrarian sector is one of few sectors with a constant surplus. Determined indicators show that the comparative advantage in the overall economy trade of Serbia with the world is achieved in primary products and products of lower processing phase, of which a significant part is from the agrarian sector. Therefore, in the final part of the paper the participation of the agrarian sector in the total foreign trade of Serbia is shown.

Bank Fees, Aftermarkets, and Consumer Behavior

Fees for banking services have been a policy concern for over 20 years and the subject of several government agencies studies, which focused on the magnitude, incidence, or disclosure of such fees. Using a sample of single market banks, I study the relationship between market-level consumer characteristics and bank fee revenue, fees, and bank return on assets (ROA) to infer consumer and firm behavior. Of particular interest, I use county-level IRS tax records as a measure of the consumer income distribution, but my analysis also includes measures of age and education distributions. I find very little evidence that banks are systematically charging higher aftermarket fees in counties with greater proportions of younger, less educated, or poorer households. Standard measures of competition such as the Herfindahl-Hirschmann Index of deposit concentration are correlated with fees for base checking accounts, but not correlated with aftermarket product fees. Finally, state-wide restrictions on payday lending are correlated with higher bank fees, but not with increased bank revenue or ROA.

Concentración o diversificación exportadora por destinos

Este documento tuvo como objetivo analizar la evolución de la concentración/diversificación de los destinos de exportación para el departamento de Santander, Colombia, entre el año 2000 y 2012. Para ello utilizó como metodología el cálculo del índice de Herfindahl-Hirschmann. Los hallazgos establecen que los destinos de exportación se han diversificado notablemente debidos principalmente a la firma de diferentes acuerdos comerciales.

ASSESSING UNILATERAL MERGER EFFECTS IN A TWO-SIDED MARKET: AN APPLICATION TO THE DUTCH DAILY NEWSPAPER MARKET

We compare different methods to assess unilateral merger effects in a two-sided market by applying them to a hypothetical merger in the Dutch newspaper industry. For this, we first specify and estimate a structural model of demand for differentiated products on both the readership and the advertising side of the market. This allows us to recover price elasticities and indirect network effects. Following Filistrucchi, Klein, and Michielsen (2010) marginal costs are then recovered from an oligopoly model of the supply side. We use these estimates of price elasticities, network effects and marginal costs to compare different methods that can be used to evaluate merger effects: We perform a concentration analysis based on the Herfindahl Hirschmann Index, a Small Significant Non-Transitory Increase in Price test, measure Upward Pricing Pressure, and conduct a full merger simulation.

Economic capital for nonperforming loans

A portfolio of nonperforming loans requires economic capital. We present two models for forecasting the portfolio loss and its probability distribution. In the first model, the loss for each nonperforming loan entails a change in provision over the risk horizon. The risk determinants are the single-name concentration, measured by the Herfindahl–Hirschmann index, as well as a systematic factor and the idiosyncratic risk. Our second model allows for interportfolio diversification with a portfolio of performing loans because banks typically own both performing and nonperforming loans. In this model, the nonperforming loan is identified with its systematic risk. Both models allow for closed-form expressions of economic capital and for the capital charge of the single loan. We calibrate the macroeconomic model parameters statistically with a loss panel; the microeconomic parameters depend on the portfolio. The portfolio risk for nonperforming loans mainly depends on the volatility of the systematic economic factor. The dependence becomes more pronounced when interportfolio diversification is taken into account. The magnitude of interportfolio diversification is also marked. Finally, we calculate regulatory capital charges according to Basel II for past-due loans. The regulatory charges are on average smaller than our economic charges and, additionally, take the volatility of economic activity into account only implicitly.

Gas-on-gas competition in Shanghai

In common with other major economic centres in China, Shanghai's energy consumption has been increasing rapidly to support the high growth rate of its economy. To achieve rational, efficient and clean use of energy, together with improved environmental quality within the city, the Shanghai municipal government has decided to expand the supply and utilization of natural gas. Shanghai plans to increase the share of natural gas in its primary energy mix to 7 per cent by 2010, up from 3 per cent in 2005. This increase in natural gas demand has to be matched with a corresponding increase in supply. To date, the Shanghai region has relied on offshore extracted natural gas but this supply is limited due to the size of the reserves. Since 2005, the West–East pipeline has provided an alternative for Shanghai but demands from other regions could reduce the potential for expanding supplies from that source. Since domestic production will not be sufficient to meet demand in the near future, Shanghai is building a liquefied natural gas (LNG) regasification terminal at the Yangshan deep-water port that would allow an additional supply of more than 3 billion cubic meters per year of natural gas. Malaysia has already committed to supply LNG to the Shanghai terminal at a price that is significantly higher than the wholesale “city-gate” price for natural gas transported via pipeline, but still lower than the gas price to end-use consumers. The presence of both an LNG terminal and a transmission pipeline that connects Shanghai to domestic gas-producing regions will create gas-on-gas competition. This study assesses the benefits of introducing such competition to one of China's most advanced cities under various scenarios for demand growth. In this paper, the impact of imported LNG on market concentration in Shanghai's gas market will be analysed using the Herfindahl–Hirschmann index (HHI) and the residual supply index (RSI). Our results show that Shanghai remains a supply-constrained gas market that will continue to rely upon gas supplies from the western provinces and imported LNG. After 2017, the gas market in Shanghai can be regarded as unconcentrated since its HHI fall below 1800 under a very high growth scenario. In terms of RSI, the gas market can be considered competitive at low, moderate and high growth consumption between 2012 and 2015.

CARTELIZING GROUPS IN DYNAMIC LINEAR OLIGOPOLY WITH ANTITRUST THRESHOLD

The effects of partially cooperating firms are examined in N-firm oligopolies. The Herfindahl-Hirschmann Index is assumed to detect the violation of the antitrust regulation by the firms, and based on this assumption a piece-wise differentiable dynamic system can be developed. The firms stop cooperating if this index becomes larger than a certain threshold and they restart or continue cooperating otherwise. The equilibria of the dynamic system are first determined. Local and global asymptotic stability of the equilibria are then investigated showing the complexity of the dynamic behavior of the system.