Size, Growth, Profits, and Executive Compensation in the Large Corporation: A Study of the 500 Largest United Kingdom and United States Industrial Corporations

By David J. Smyth; William J. Boyes | Go to book overview

5 Alternative Measures of
Concentration: Theory
and Evidence

I INTRODUCTION

Various ratios measuring the extent to which control of a market is concentrated have been proposed and used in empirical analysis. Such measures also have considerable practicable importance — for instance in the United States concentration indices play a key role in the implementation of anti-trust laws. Alternative concentration measures differ in their availability and ease of computation and, as choice of the most appropriate concentration measure is an unsettled question, researchers commonly opt for the simplest and most readily available measure — the share of shipments accounted for by the four largest companies in an industry. Support for this position has been provided by evidence that different concentration indices are closely correlated — see Bailey and Boyle ( 1971). However, arbitrary choice of alternative concentration measures is subject to exactly the same criticism as arbitrary use of firm-size measures. In subsequent sections of this chapter, we shall demonstrate that alternative measures of firm size are readily interchangeable only if they are proportional to each other and we shall show that this condition is not fulfilled for the United States.


2 CONDITIONS UNDER WHICH EMPIRICAL RESULTS
WILL BE INDEPENDENT OF THE MEASURE OF
CONCENTRATION USED

The most common empirical application of concentration measures is where it is desired to estimate the magnitude of response of some variable to concentration and in particular when it is of interest to ascertain whether the variable varies more than proportionately,

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