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The Role of Market Share and Concentration in Firm Profitability: Implications for Competition Policy

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  • Feeny, Simon

    (University of Melbourne)

  • Rogers, Mark

    (Oxford University (UK))

Abstract

This paper analyses empirically the relationship between market share and profitability in a sample of 722 large Australian firms. This issue is linked to merger policy in Australia since the Australian Competition and Consumer Commission (ACCC) guidelines state that, in many cases, creating a market share in excess of 40 per cent is a reason for an investigation. Using the most up-to-date Australian firm-level data, it is shown that profitability tends to rise the market share exceeds 30%. This result suggests that the merger policy guidelines are broadly in agreement with empirical evidence. However, the empirical results suggest a U-shaped relationship between market share and profitability, with profitability first declining and the rising. This result challenges traditional theory and suggests that the market share to profitability relationship is complex.

Suggested Citation

  • Feeny, Simon & Rogers, Mark, 2000. "The Role of Market Share and Concentration in Firm Profitability: Implications for Competition Policy," Economic Analysis and Policy, Elsevier, vol. 30(2), pages 115-132, September.
    • Handle: RePEc:eee:ecanpo:v:30:y:2000:i:2:p:115-132
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    Cited by:

    1. Mark Rogers, 2002. "Firm Performance and Investment in R&D and Intellectual Property," Melbourne Institute Working Paper Series wp2002n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    2. Almas Heshmati & Rachid El-Rhinaoui, 2009. "Effects of Ownership and Market Share on Performance of Mobile Operators in MENA Region," TEMEP Discussion Papers 200921, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Nov 2009.

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