Concentration measurement under cross-ownership. An application to the Spanish electricity sector
AbstractWhen major investors own shares in several firms in the same industry, the traditional approach to concentration measurement by the Hirschman-Herfindahl Index (HHI) fails to accurately reflect the level of competition in the market. To address this problem we derive a generalized HHI formula (GHHI) based on the investors' degree of control over each firm. We test alternative definitions of this control with actual data from the Spanish electricity sector and show that recent decisions in this industry, particularly the failed merge between the largest firms, Endesa and Iberdrola, could have been affected had the GHHI been used by the competition agency.
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Bibliographic InfoPaper provided by Facultad de Ciencias Económicas de la ULPGC in its series Documentos de trabajo conjunto ULL-ULPGC with number 2002-06.
Length: 25 pages
Date of creation: Sep 2002
Date of revision:
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Hirschman-Herfindahl index; cross-ownership; electricity industry;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-09 (All new papers)
- NEP-COM-2002-12-09 (Industrial Competition)
- NEP-IND-2002-12-09 (Industrial Organization)
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