Measures Of Market Concentration Research Articles

Audit Fees, Auditor Switching and Competition in the UK Auditor Market: An Analysis of UK Companies (1998-2012)

In this study we aim to undertake a comprehensive examination of the audit market in the UK covering the population of limited companies that have and/or are required to file audited accounts. The study will examine over a longer period (1998-2012) the trends in the audit market, measures of market concentration, switching behavior and the determinants of audit fees. Firms are organized into a data panel with up to 15 years of time series observations per company. We identify auditor and audit fee from the financial statements of limited companies as filed at Companies House. Using a unique and extensive dataset of financial statements and other non-financial information about all UK private and listed companies we explore the following (often inter-related) questions regarding the audit market: 1. What are the most important audit fee determinants? What are the trends in average audit fees after we control for all other relevant audit fee determinants? Are the audit fee determinants and their weights stable in time? Do the identified determinants of audit fee and their weightings differ for the various Big4 and mid-tier auditors? 2. What is the extent of auditors’ switching? What is the extent of initial price discounting? Does the discount apply regardless of the auditor and company size, year and industry sector, or are there significant differences along any of these dimensions? 3. Do customers of the Big4 pay higher fees compared to the competition? Does the same hold for the customers of the biggest mid-tier audit firms? Is the fee premium because of superior quality/service or because the auditors are exploiting market power? Are there significant differences in audit fee (premium) relating to the auditor and company size, year and industry sector? Is there any connection between audit market concentration and audit fees? 4. Does audit fee change when a company is in financial distress? Do firms in financial distress pay higher fees? Are the auditors able to anticipate bankruptcy? If there exist distress/default/exit surcharge, is it stable in time?

국내 건설사업관리 시장의 구조 변화 분석 - 2004-2012년 CM공시자료를 기반으로 -

The modern construction industry in Korea is poised to introduce innovative project management methods, such as CM (construction management)-at-Risk, and to establish an institutional base that will facilitate a switch to a high-value knowledge-based industry. Thus, it is necessary to provide guidelines for business expansion, including entry into related domestic and foreign markets. The principal aim of this paper is to make an evaluation and to analyze the issues concerning the market structure of CM industry. The public announcement data of CM capability during the years 2004-2012, are collected to compute comparable measures of market concentration. As, the market concentration is most used as a proxy index of competition, this paper applied concentration ratio (<TEX>$CR_3$</TEX>, <TEX>$CR_4$</TEX>, <TEX>$CR_5$</TEX>) method, E, RE, HHI and Gini Coefficient to analyze the concentration indices for CM industry market with 2004 to 2012 statistical data. Analysis of the indices indicates that CM industry has not been concentrated. The results of this study would assist the managers to design better competitive strategies they have to compete.

Data-Driven Review of Thermoelectric Materials: Performance and Resource Considerations

In this review, we describe the creation of a large database of thermoelectric materials prepared by abstracting information from over 100 publications. The database has over 18 000 data points from multiple classes of compounds, whose relevant properties have been measured at several temperatures. Appropriate visualization of the data immediately allows certain insights to be gained with regard to the property space of plausible thermoelectric materials. Of particular note is that any candidate material needs to display an electrical resistivity value that is close to 1 mΩ cm at 300 K, that is, samples should be significantly more conductive than the Mott minimum metallic conductivity. The Herfindahl–Hirschman index, a commonly accepted measure of market concentration, has been calculated from geological data (known elemental reserves) and geopolitical data (elemental production) for much of the periodic table. The visualization strategy employed here allows rapid sorting of thermoelectric compositions w...

How does competition affect bank risk-taking?

A common assumption in the academic literature and in the supervision of banking systems is that franchise value plays a key role in limiting bank risk-taking. As market power is the primary source of franchise value, reduced competition in banking markets has been seen as promoting banking stability. A recent paper by Martínez-Miera and Repullo (MMR, 2010) shows that a nonlinear relationship theoretically exists between bank competition and risk-taking in the loan market. We test this hypothesis using data from the Spanish banking system. After controlling for macroeconomic conditions and bank characteristics, we find support for this nonlinear relationship using standard measures of market concentration in both the loan and deposit markets. When direct measures of market power, such as Lerner indices, are used, the empirical results are more supportive of the original franchise value hypothesis, but only in the loan market. Overall, the results highlight the empirical relevance of the MMR model, even though further analysis across other banking markets is needed.

Concorrência e as participações minoritárias entre firmas rivais

O objetivo deste trabalho é analisar quais os impactos sobre a concorrência de participações minoritárias entre firmas rivais. A aplicação do MHHI, índice de concentração recentemente proposto na literatura, indica que essas ligações estruturais podem causar efeitos adversos sobre a concorrência. Tais prejuízos se intensificam quanto maiores os market-shares e o poder de controle que a firma adquirente tem sobre a adquirida. Porém, quando essas ligações são ignoradas ou consideradas como fusões completas, tais prejuízos são subestimados ou superestimados, respectivamente. Assim, conclui-se que o MHHI é um indicador de concentração mais adequado na presença de participações minoritárias entre firmas rivais.

Generic Substitution Effects on Firm Level Market Shares in the Finnish Beta Blocker Market 1997Q1-2007Q4

The firm level market structure of the Finnish beta blocker market in the period from 1997Q1 to 2007Q4 is analyzed with data analysis and with panel data regression methods. Four different market concentration measures are used. Although drug prices have decreased in response to the competition-enhancing generic substitution system which started on the 1st of March 2003, the firms’ observed market shares in the market have not decreased uniformly in the all market dimensions. At the drug substitution group level, policy change has led to more equal group share distributions both for the nominal sales shares and quantity sales shares compared to the pre-policy period. At the whole market level, nominal firm sales shares of the largest firms have increased during the policy era but quantity sales shares have declined. The results imply that the dominant firms’ nominal sale shares are augmented with firm-specific drug price setting power. The results challenge the European Union (EU) drug policy targeted to increase competition in the drug markets.

The concentration of offshore drilling rig markets

This paper investigates the impact of market concentration on prices in the Atlantic offshore drilling rig market from 1990 to 2005. The purpose is to test whether merger and acquisition activity has increased prices, and to provide some perspective on the geographic definition of the market. The jack-up and semi-submersible markets are investigated separately. The results of this research provides strong evidence to support the conclusion that increased market concentration has resulted in increased prices. The results also suggest that the market concentration of the Atlantic market is the relevant measure of market concentration rather than the market concentrations of the regional sub-markets. The results provide insight into the industrial organisation of an important exploration and production input market and can be used by anti-trust regulators to make judgements about market competitiveness and to make decisions regarding the social desirability of prospective mergers and acquisitions.

How Does Competition Impact Bank Risk Taking?

A common assumption in the academic literature and in the actual supervision of banking systems worldwide is that franchise value plays a key role in limiting bank risk-taking. As the underlying source of franchise value is assumed to be market power, reduced competition has been considered to promote banking stability. Boyd and De Nicolo (2005) propose an alternative view where concentration in the loan market could lead to increased borrower debt loads and a corresponding increase in loan defaults that undermine bank stability. Martinez-Miera and Repullo (2007) encompass both approaches by proposing a nonlinear relationship between competition and bank risk-taking. Using unique datasets for the Spanish banking system, we examine the empirical nature of that relationship. After controlling for macroeconomic conditions and bank characteristics, we find that standard measures of market concentration do not affect the ratio of non-performing commercial loans (NPL), our measure of bank risk. However, using Lerner indexes based on bank-specific interest rates, we find a negative relationship between loan market power and bank risk. This result provides evidence in favor of the franchise value paradigm.

Oil industry consolidation and refined product prices: Evidence from US wholesale gasoline terminals

Our objective in this paper is to quantify the impact of petroleum industry consolidation on refined product prices, controlling for other important factors that could also impact prices. Our empirical analysis focuses on the US petroleum refining industry using data on industry consolidation and wholesale gasoline prices collected over the interval 2000–2008. We match refinery units to wholesale city-terminal gasoline markets, and then estimate pooled cross-section time-series regressions to quantify the impact of petroleum industry consolidation on wholesale gasoline prices at city-specific terminals. The results of the empirical analysis of mergers are mixed, showing that some petroleum industry mergers resulted in statistically significant increases in refined product prices; others resulted in statistically significant declines and still others had no statistical impact at all. Our analysis of the effects of measures of market concentration—one at the level of city-specific wholesale terminals and another at the level of regional spot markets—found evidence that less concentrated markets are associated with lower price levels.

How Does Competition Impact Bank Risk-Taking?

A common assumption in the academic literature and in the actual supervision of banking systems worldwide is that franchise value plays a key role in limiting bank risk-taking. As the underlying source of franchise value is assumed to be market power, reduced competition has been considered to promote banking stability. Boyd and De Nicolo (2005) propose an alternative view where concentration in the loan market could lead to increased borrower debt loads and a corresponding increase in loan defaults that undermine bank stability. Martinez-Miera and Repullo (2007) encompass both approaches by proposing a nonlinear relationship between competition and bank risk-taking. Using unique datasets for the Spanish banking system, we examine the empirical nature of that relationship. After controlling for macroeconomic conditions and bank characteristics, we find that standard measures of market concentration do not affect the ratio of non-performing commercial loans (NPL), our measure of bank risk. However, using Lerner indexes based on bank-specific interest rates, we find a negative relationship between loan market power and bank risk. This result provides evidence in favor of the franchise value paradigm.

COMPETING EXPLANATIONS OF U.S. DEFENSE INDUSTRY CONSOLIDATION IN THE 1990s AND THEIR POLICY IMPLICATIONS

I. INTRODUCTION In this article, we test for structural breaks in U.S. defense industry and spending data over last five decades. The defense industry data, which include various measures of market concentration, capture trends in consolidation; spending data, defined broadly to include measures of contract awards, budget authority, and expenditures and investment, capture trends in market size. We identify structural breaks in those data and compare them to structural breaks found in data relating to rest of economy to address a lingering debate among defense analysts, policy practitioners, and executives as to forces behind of defense industry in 1990s. Was result of an explicit directive of U.S. Department of Defense (DOD) or was it driven by same forces that led to in many sectors of U.S. economy in 1990s? In an era in which concerns about future of defense industry are again prominent, answer bears directly on whether and how DOD might choose to engage as a policymaking and procuring agency. If broader economic forces drive industry behavior, DOD may face limitations in promoting competition, spurring innovation, or otherwise shaping defense industry. We interpret structural breaks in data as indicative of changes in defense spending, defense industry at large, and broader economy, which, in context of two stylized narratives, provides a statistical approach to explaining defense-industry consolidation. The first stylized narrative, representing what we refer to as DOD-policy-centric view, describes DOD as primary engineer of defense industry in 1990s. The defense budget had been declining steadily since mid-1980s and DOD was seeking to reduce excess capacity and check rising costs. In response, at a 1993 dinner now referred to as Supper, DOD asserted its support for industry-wide [see Augustine (1997, 2006) for an eyewitness account]. The DOD backed its assertion by agreeing to reimburse firms for some merger-related costs and, later, through antitrust oversight [for discussions see Gholz and Sapolsky (1999-2000), Markusen and Costigan (1999), and Markusen (1997)]. Without explicitly denying relevance of economy-wide factors, this narrative claims DOD policy as dominant factor in process. For example, former chairman of Lockheed Martin Corporation, Norman R. Augustine, characterizes Last Supper as perhaps the most critical moment in defense industry's consolidation (Augustine, 1997). His comments suggest that defense industry was hesitant to consolidate, even when faced with a declining budget, without encouragement from its largest purchaser, DOD. (1) In contrast, a stylized view places economy-wide phenomenon at center of a story in which same forces that drove large number of mergers in rest of U.S. economy also drove of defense industry in 1990s. Such forces included developments in capital markets, innovation in technology, and deregulation [see Holmstrom and Kaplan (2001) and Andrade, Mitchell, and Stafford (2001) for details on merger activity in U.S. economy]. Although economy-centric view does not dismiss impact of decline in defense budget, or response of DOD to that decline, it suggests that other forces provide a more telling explanation of defense-industry consolidation. Hensel (2007), for example, offers evidence that defense industry mergers in 1990s are more correlated with economy-wide mergers than with DOD spending [see also Flamm (1998) and Oden (1998) for relevant discussions of evidence that is supportive of an economy-wide perspective]. We use methods of Bai and Perron (1998, 2003) to estimate structural breaks in data that measure defense industry consolidation, defense spending, and economy-wide trends. …

The End of Gatekeeping: Underwriters and the Quality of Sovereign Bond Markets, 1815–2007

We provide a comparison of salient organizational features of primary markets for foreign government debt over the very long run. We focus on output, quality control, information provision, competition, pricing, charging and signaling. We find that the market set up experienced a radical transformation in the recent period and interpret this as resulting from the rise of liability insurance provided by rating agencies. Underwriters have given up their former role as gatekeepers of liquidity and certification agencies to become aggressive competitors in a new speculative grade market.

Measuring the energy security implications of fossil fuel resource concentration

Economic assessments of the welfare effects of energy insecurity are typically uncertain and fail to provide clear guidance to policy makers. As a result, governments have had little analytical support to complement expert judgment in the assessment of energy security. This is likely to be inadequate when considering multiple policy goals, and in particular the intersections between energy security and climate change mitigation policies. This paper presents an alternative approach which focuses on gauging the causes of energy insecurity as a way to assist policy making. The paper focuses on the energy security implications of fossil fuel resource concentration and distinguishes between the price and physical availability components of energy insecurity. It defines two separate indexes: the energy security price index (ESPI), based on the measure of market concentration in competitive fossil fuel markets, and the energy security physical availability index (ESPAI), based on the measure of supply flexibility in regulated markets. The paper illustrates the application of ESPI and ESPAI with two case studies—France and the United Kingdom—looking at the evolution of both indexes to 2030.

Growth responses to competitive shocks: Market structure dynamics under liberalisation

Liberalisation transforms market structures through the responses of incumbent firms and entrants to freedom of choice. Market shares tend to turn more volatile, and the agility and competitiveness of small, as against large, firms determine whether markets grow more concentrated, or less. We analyse the way these processes played out in Indian manufacturing industries over the 17-year period from 1981, spanning the domestic liberalisation of 1985 and the more comprehensive reforms of 1991. An observer looking at summary measures of market concentration might conclude that not much happened under either liberalisation episode. In fact, market share grew significantly more turbulent, and the relationship between market share-growth and initial share changed considerably. Domestic and comprehensive liberalisation saw different types of course corrections in these processes. But in both liberalisation episodes they tended to offset one another in their impact on observed market concentration, which therefore, changed little.

How Good is the BankScope Database? A Cross-Validation Exercise With Correction Factors for Market Concentration Measures

The paper examines the quality of the BankScope database, by comparing results based on it to those obtained from the population-level data for India disseminated by the Reserve Bank of India. Despite good coverage and minor reporting errors in the individual reported units, strong evidence of selectivity bias in BankScope data for India is found. A major source of the selectivity bias for India is the almost total omission of Regional Rural Banks and Foreign Banks. It is shown that this selectivity bias affects estimates of all summary statistical measures and could lead users of the data to conclude that the Indian banking market is unimodal when, in reality, it is segmented and has a bimodal pattern. Kolmogorov-Smironov tests reveal that neither the distribution of the log of total assets nor that of market shares based on the BankScope data could be treated same as the corresponding population distributions for India. Despite these limitations, the paper shows that a few popularly used market concentration measures could be estimated from BankScope data accurately, provided the coverage ratio with respect to the size variable is known from alternative sources and is adequate. Coverage of about 90% with respect to the size variable is found to be sufficient for approximating population HHI. For k-bank concentration measures, accurate estimates could be obtained if, in addition, the top k-banks in the population are also available in the sample. In contrast, for entropy measures, results indicate that adequate coverage with respect to both the size variable and the number of financial entities would be required.

Reevaluating Merger Guidelines for the New Economy

The inherent dynamic competitiveness of the new economy brings about novel challenges to antitrust enforcements. We evaluate the appropriateness of the 1992 Horizontal Merger Guidelines in light of this new environment. We show that the Guidelines relies too heavily on market concentration measures that are bound to be overstated for new-economy industries. To properly address the dynamic competitiveness of the market, we suggest that the Guidelines should (i) explicitly consider innovation markets in the market-defining process, (ii) pay attention to entry conditions as the most important standard for assessing competitiveness, (iii) examine demand-side volatilities when assessing likeliness of entries, and (iv) use less strict standards for substantiating efficiency gains.

An Application of HHI to Study Electricity Market Design Issues

This paper presents a study of market design issues for the future Electricity Supply Industry of countries in transition from monopolistic to more competitive structures. An approach is developed to apply a standard measurement of market concentration, such as Herfindahl Hirschman Index (HHI) within the market design context. Typically, HHI is used to study market power issues in established electricity markets. The approach presented in this paper indicates that HHI can also be used as a primary method to study market design ahead of implementation. A dynamic simulation of the Thai market is used to confirm the applicability of the approach presented in this paper.

The Geographic Scope of Retail Deposit Markets

In analyzing the competitive effects of proposed bank mergers and acquisitions, United States antitrust authorities rely on two important assumptions: (1) that markets for at least some types of banking products are local in scope, and (2) that market concentration measures can serve as effective proxies for banks' abilities to extract monopoly rents. This paper uses balance sheet data from most banks operating in the United States in 1988, 1992, 1996, and 1999 to test these assumptions.

Simulation of a Hirschman-Herfindahl index without complete market share information.

This paper utilizes maximum likelihood methods to simulate a Hirschman-Herfindahl index (HHI) for markets in which complete market share information is unavailable or delayed. Many jurisdictions either may be unable to administratively collect data or experience delays in collection that make data regarding turbulent markets of limited use. With the development of this method, regulatory authorities monitoring health-care competition or health-care firms can now use market surveys--in which reliable recall is often limited to the largest three or four firms--to produce an on-the-spot measure of market concentration.

The Geographic Scope of Retail Deposit Markets

In the United States, antitrust authorities rely heavily on numerical measures of local banking market concentration such as the Herfindahl Hirschmann Index to assess the likely competitive effects of proposed bank mergers and acquisitions. This approach to antitrust enforcement relies on two important assumptions: (1) that markets for at least some types of banking products are local in scope, and (2) that market concentration measures can serve as effective proxies for banks' abilities to extract monopoly rents. This paper uses balance sheet data from most banks operating in the United States in 1988, 1992, 1996, and 1999 to test these assumptions.