The Anatomy of Concentration: New Evidence From a Unified Framework

80 Pages Posted: 24 Jul 2023 Last revised: 13 Jan 2024

See all articles by Kenneth R. Ahern

Kenneth R. Ahern

University of Southern California - Marshall School of Business; National Bureau of Economic Research (NBER)

Lei Kong

University of Alabama - Department of Economics, Finance and Legal Studies

Xinyan Yan

University of South Florida

Multiple version iconThere are 2 versions of this paper

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

Ahern, Kenneth Robinson and Kong, Lei and Yan, Xinyan, The Anatomy of Concentration: New Evidence From a Unified Framework (January 10, 2024). Available at SSRN: https://ssrn.com/abstract=4510938 or http://dx.doi.org/10.2139/ssrn.4510938

Kenneth Robinson Ahern (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~kahern/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lei Kong

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Xinyan Yan

University of South Florida ( email )

Tampa, FL 33620-5500
United States

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