Competition and Critical Mass
Empirical literature and related legal practice using concentration as a proxy for competition measurement are prone to a fallacy of division, as concentration measures are appropriate for perfect competition and perfect collusion but not intermediate levels of competition. Extending the classic Cournot-type competition model of Cowling and Waterson (1976) and Cowling (1976) used to derive the Hirschman-Herfindahl Index (HHI) of market concentration, we propose an adaptation of this model that allows collusive rents for all, none, or some of the firms in a market. Application of our model and new critical mass measures to data for U.S. commercial banks in the period 1984-2004 confirms that concentration measures are unreliable competition metrics. Our results lead us to conclude that critical mass is a promising new market power metric for competition analyses. Policy and future research implications are briefly discussed.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +31 (0)43 38 83 830
Web page: http://www.maastrichtuniversity.nl/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- repec:use:tkiwps:0916 is not listed on IDEAS
- Berger, Allen N, et al, 2004. "Bank Concentration and Competition: An Evolution in the Making," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 433-51, June.
- J.W.B. Bos & J.W. Kolari, 2003.
"Large Bank Efficiency in Europe and the United States: Are There Economic Motivations for Geographic Expansion in Financial Services?,"
Research Series Supervision (discontinued)
61, Netherlands Central Bank, Directorate Supervision.
- Jaap W. B. Bos & James W. Kolari, 2005. "Large Bank Efficiency in Europe and the United States: Are There Economic Motivations for Geographic Expansion in Financial Services?," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1555-1592, July.
- Berger, Allen N & Hannan, Timothy H, 1989.
"The Price-Concentration Relationship in Banking,"
The Review of Economics and Statistics,
MIT Press, vol. 71(2), pages 291-99, May.
- Allen N. Berger & Timothy H. Hannan, 1988. "The price-concentration relationship in banking," Finance and Economics Discussion Series 23, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & Timothy H. Hannan, 1987. "The price-concentration relationship in banking," Research Papers in Banking and Financial Economics 100, Board of Governors of the Federal Reserve System (U.S.).
- Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002.
"Competition and innovation: an inverted U relationship,"
IFS Working Papers
W02/04, Institute for Fiscal Studies.
- Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: An Inverted-U Relationship," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 701-728, May.
- Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
- Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
- Adelman, M A, 1969. "Comment on the "H" Concentration Measure as a Numbers-Equivalent," The Review of Economics and Statistics, MIT Press, vol. 51(1), pages 99-101, February.
- Evans, William N & Kessides, Ioannis N, 1993. "Localized Market Power in the U.S. Airline Industry," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 66-75, February.
- Gilbert, R Alton, 1984. "Bank Market Structure and Competition: A Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 16(4), pages 617-44, November.
- Cowling, Keith, 1976. "On the theoretical specification of industrial structure-performance relationships," European Economic Review, Elsevier, vol. 8(1), pages 1-14, June.
- Goldberg, Lawrence G. & Rai, Anoop, 1996. "The structure-performance relationship for European banking," Journal of Banking & Finance, Elsevier, vol. 20(4), pages 745-771, May.
- Barbara Casu & Claudia Girardone, 2006. "Bank Competition, Concentration And Efficiency In The Single European Market," Manchester School, University of Manchester, vol. 74(4), pages 441-468, 07.
- Goppelsroeder, M. & Schinkel, M.P. & Tuinstra, J., 2006. "Quantifying the Scope for Efficiency Defense in Merger Control: The Werden-Froeb-Index," CeNDEF Working Papers 06-09, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Jan Boone, 2008.
"A New Way to Measure Competition,"
Royal Economic Society, vol. 118(531), pages 1245-1261, 08.
- Boone, J., 2004. "A New Way to Measure Competition," Discussion Paper 2004-31, Tilburg University, Center for Economic Research.
- Boone, J., 2004. "A New Way to Measure Competition," Discussion Paper 2004-004, Tilburg University, Tilburg Law and Economic Center.
- Boone, Jan, 2004. "A New Way to Measure Competition," CEPR Discussion Papers 4330, C.E.P.R. Discussion Papers.
- Caballero, Ricardo J. & Engel, Eduardo M. R. A., 1993.
"Microeconomic rigidities and aggregate price dynamics,"
European Economic Review,
Elsevier, vol. 37(4), pages 697-711, May.
- Ricardo J. Caballero & Eduardo M.R.A. Engel, 1992. "Microeconomic Rigidities and Aggregate Price Dynamics," NBER Working Papers 4162, National Bureau of Economic Research, Inc.
- Allen N. Berger & Asli Demirgüç-Kunt & Ross Levine & Joseph G. Haubrich, 2004. "Introduction: Bank concentration and competition: an evolution in the making," Proceedings, Federal Reserve Bank of Cleveland, pages 433-451.
- Aghion, Philippe, et al, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Wiley Blackwell, vol. 68(3), pages 467-92, July.
- Berger, Allen N, 1995. "The Profit-Structure Relationship in Banking--Tests of Market-Power and Efficient-Structure Hypotheses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 404-31, May.
- R. Alton Gilbert & Adam M. Zaretsky, 2003. "Banking antitrust: are the assumptions still valid?," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 29-52.
- Cowling, Keith & Waterson, Michael, 1976. "Price-Cost Margins and Market Structure," Economica, London School of Economics and Political Science, vol. 43(171), pages 267-74, August.
When requesting a correction, please mention this item's handle: RePEc:unm:umamet:2010063. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Charles Bollen)
If references are entirely missing, you can add them using this form.