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When is Concentration Beneficial?

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  • Liron-Espana, Carmen
  • Lopez, Rigoberto A.

Abstract

This paper separates market power and efficiency effects of concentration in a sample of 255 U.S. manufacturing industries and computes welfare changes from rises in concentration. The empirical findings reveal that in nearly two-third of the cases, consumers lose as efficiency gains are generally pocketed by the industries. From an aggregate welfare standpoint, concentration is found to be beneficial in nearly 70% of the cases, mostly for low and moderate levels of concentration being particularly against the public interest in highly concentrated markets. Overall, the results support the existing U.S. Federal Trade Commission guidelines for approval of mergers.

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File URL: http://purl.umn.edu/25201
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Bibliographic Info

Paper provided by University of Connecticut, Food Marketing Policy Center in its series Research Reports with number 25201.

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Date of creation: 2001
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Handle: RePEc:ags:uconnr:25201

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Keywords: concentration; marked power; efficiency; manufacturing; Industrial Organization;

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  1. Golan, Amos & Judge, George & Perloff, Jeffrey M, 1996. "Estimating the Size Distribution of Firms Using Government Summary Statistics," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 69-80, March.
  2. Allen Berger & Timothy Hannan, 1994. "The Efficiency Cost of Market Power in the Banking Industry: A Test of the 'Quiet Life' and Related Hypotheses," Center for Financial Institutions Working Papers 94-29, Wharton School Center for Financial Institutions, University of Pennsylvania.
  3. Azzam, Azzeddine M, 1997. "Measuring Market Power and Cost-Efficiency Effects of Industrial Concentration," Journal of Industrial Economics, Wiley Blackwell, vol. 45(4), pages 377-86, December.
  4. Martin, Stephen, 1988. "Market Power and/or Efficiency?," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 331-35, May.
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