The Measurement of Concentration

We define the process of concentration as an increase in the extent to which economic activity is controlled by large firms. This definition requires expansion and explanation in at least four directions. First, what are the units in which economic activity is measured — sales, assets, employment or something else? Second, what is the area in which control is exercised — the industry, the region, the economy as a whole? Third, do we mean large in an absolute sense, or simply large relative to other firms in the same industry or economy? And fourth, once we have answered these questions and assembled our data, how do we combine them in a single summary measure of industrial structure — do we use concentration ratios, or one of the many other indices which have been proposed? None of these questions are of the kind to which there are right or wrong answers: there are particular ways of answering them which are more relevant for particular purposes, and, as we have argued in the preceding chapter, there are many different reasons for being interested in concentration. It is an empirical fact that it rarely matters how we answer them. The overall pattern of concentration and its trends are much the same however we choose to measure them. (Bates 1965, and pp. 93–7 below).