Warning on concentration measures

Although concentration measures are widely used in economics and in law.they are of;ten misleading because of international competition and structural change. Conventional concentration measures include only domestic production and exclude imports. Because foreign competition has risen sharply, over the last “three decades, the actual mart power of domestic firms is much less than is indicated by conventional measures. As a result, in industries which are exposed to international competition, concentration ratios will overstate extent of power. For example, the conventional concentration measure shown in Figure 10-1 indicates that the top four automotive firms had & 4 percent of the Maricela.

But if imports are included in sales, these same four firms had only 60 percent of the market. In addition, concentration measures ignore the impact of competition from other industries. For example, concentration ratios have historically been calculated for I narrow industry definition, such as’ paired-wire telephone services. Sometimes, ho, strong competition comes from other quavers. Cellular telephones , a major threat to conventional telephone service e¥en thou&h the two are produced by different industries. To reflect this technological. the Federal Communications Commission . to review among, telecommunications firms that different such u cable TV, cellular.and telephony.

In the end. some measure of concern of a market Is essential for many Kepi purposes. such u aspect S of antitrust law examined in Chapter 17. A careful delineation of  Maricela which includes all competitors can be helpful in determining whether monopolistic abuses are a real threat.

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