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On the Concept of Market Concentration, the Minimum Herfindahl-Hirschman Index, and Its Practical Application

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  • Algirdas Krivka Author-Email: a.krivka@gmail.com

    (Department of Economics and Management of Enterprises, Vilnius Gediminas Technical University, Lithuania)

Abstract

The paper analyses the phenomenon of market concentration in the context of the most popular industrial organization approaches: the struc- ture-conduct-performance (SCP) approach and the efficiency hypothesis (EH). The theory of market concentration evaluation is briefly presented, followed by an analysis of the main concentration indicators and their application in recent empirical research. The main problem in the practical application of the Herfindahl-Hirschman index (HHI) – the necessity to incorporate the market shares of all the enterprises in the market – is further addressed and the issue of calculating the minimum value of the HHI is analysed from the theoretical point of view and by modelling hypothetical markets.

Suggested Citation

  • Algirdas Krivka Author-Email: a.krivka@gmail.com, 2016. "On the Concept of Market Concentration, the Minimum Herfindahl-Hirschman Index, and Its Practical Application," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 63(5), pages 525-540, December.
  • Handle: RePEc:voj:journl:v:63:y:2016:i:5:p:525-540
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    References listed on IDEAS

    as
    1. Indrit Hoxha, 2013. "The effect of banking market structure on the volatility of growth of manufacturing sectors in developing countries," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(4), pages 528-546, October.
    2. Peltzman, Sam, 1977. "The Gains and Losses from Industrial Concentration," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 229-263, October.
    3. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    4. Silvia Mãrginean & Ramona Toma (Orãştean), 2010. "Some Issues Concerning Sector Concentration. Evidence from Romania," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 12(1), pages 110-130, November.
    5. Liu, Li & Altshuler, Rosanne, 2013. "Measuring the Burden of the Corporate Income Tax Under Imperfect Competition," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(1), pages 215-237, March.
    6. Jason Beck & Frank Scott & Aaron Yelowitz, 2012. "Concentration and Market Structure in Local Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 40(3), pages 422-460, September.
    7. Samuel Yaw Akomea & Michael Adusei, 2013. "Bank Recapitalization And Market Concentration In Ghana’S Banking Industry: A Herfindahl-Hirschman Index Analysis," Global Journal of Business Research, The Institute for Business and Finance Research, vol. 7(3), pages 31-45.
    8. Sami Mensi, 2010. "Measurement of Competitiveness Degree in Tunisian Deposit Banks: An Application of the Panzar and Rosse Model," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(2), pages 189-207, June.
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    More about this item

    Keywords

    Market structure; Market concentration; Herfindahl-Hirschman index (HHI);

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design

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