The Anatomy of Concentration: New Evidence From a Unified Framework
80 Pages Posted: 24 Jul 2023 Last revised: 13 Jan 2024
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The Anatomy of Concentration: New Evidence From a Unified Framework
The Anatomy of Concentration: New Evidence from a Unified Framework
Date Written: January 10, 2024
Abstract
Concentration is a single summary statistic driven by two opposing forces: the number of firms in a market and the evenness of their market shares. This paper introduces a generalized measure of concentration that allows researchers to vary the relative importance of each force. Using the generalized measure, we show that the widely-cited evidence of increasing industrial employment concentration is driven by the Herfindahl Index's over-weighting of evenness and under-weighting of firm counts. We propose an alternative, equally-weighted measure that has an equivalent economic meaning as the Herfindahl Index, but possesses superior statistical attributes in typical firm size distributions. Using this balanced measure, we find that employment concentration decreased from 1990 to 2020. Finally, decomposing aggregate diversity into meaningful geographic and industry subdivisions reveals that concentration within regional markets has fallen, while concentration between markets has risen.
Keywords: Concentration, diversity, market structure, firm size distribution
JEL Classification: D40, L11, C46
Suggested Citation: Suggested Citation