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When is Concentration Beneficial?

Author Info

Listed author(s):
  • Carmen Liron-Espana
  • Rigoberto A. Lopez

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://fmpc.uconn.edu/publications/rr/rr62.pdf
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Paper provided by University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy in its series Food Marketing Policy Center Research Reports with number 062.

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Date of creation: 2001
Handle: RePEc:zwi:fpcrep:062
Contact details of provider: Postal:
1376 Storrs Road, U-21, Storrs, Connecticut 06269-4021

Phone: 860-486-2836
Fax: 860-486-1932
Web page: http://www.zwickcenter.uconn.edu
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Keywords: concentration; marked power; efficiency; manufacturing; Industrial Organization;

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  1. Allen N. Berger & Timothy H. Hannan, 1998. "The Efficiency Cost Of Market Power In The Banking Industry: A Test Of The "Quiet Life" And Related Hypotheses," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 454-465, August.
  2. Martin, Stephen, 1988. "Market Power and/or Efficiency?," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 331-335, May.
  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 377-386, December.
  4. 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.
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Cited by:

  1. Lopez Rigoberto A & Lirón-España Carmen, 2002. "Social Welfare and the Market Power-Efficiency Tradeoff in U.S. Food Processing: A Note," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 1(1), pages 1-10, October.

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