Dominance (economics)

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In economics, dominance is a concept related to the degree of inequality, disparity, or asymmetry in the market share distribution of the firms or participants in a market.

1 Examples
2 See also
3 References
4 External links

[edit] Examples

Kwoka's dominance index (D) is defined as the sum of the squared differences between each firm's share and the next largest share in a market:

$D = \sum_{i=1}^{n-1} (s_i-s_{i+1})^2$

where

$s_1 \ge ... \ge s_i \ge s_{i+1} \ge ... \ge s_n$ for all i = 1, ..., n - 1 (Kwoka, 1977).

As part of its merger review process, Mexican Competition Commission uses dominance index (ID), described as the Herfindahl index of a Herfindahl index (HHI). Formally, ID is the sum of squared firm contributions to the market HHI: $ID = \sum_{i=1}^n h_i^2$ where $h_i = \left. s_i^2 \right/ HHI.$

European Commission's Tenth Report on Competition implies that a significant disparity between the largest and the second-largest firm shares can indicate that the largest firm has a dominant position in the market. Specifically, under a section entitled "Scrutiny of mergers for compatibility with Article 86 EEC," the Report states:

A dominant position can generally be said to exist once a market share to the order of 40% to 45% is reached. [footnote: A dominant position cannot even be ruled out in respect of market shares between 20% and 40%; Ninth Report on Competition Policy, point 22.] Although this share does not in itself automatically give control of the market, if there are large gaps between the position of the firm concerned and those of its closest competitors and also other factors likely to place it at an advantage as regards competition, a dominant position may well exist. (European Commission's Tenth Report on Competition, page 103, paragraph 150.)

Asymmetry Index (AI) is defined as the statistical variance of market shares: $AI=\left.\sum_{i=1}^n \left(s_i- {1 \over n}\right)^2 \right/n.$ See Brown and Warren-Boulton (1988), also see Warren-Boulton (1990).

[edit] See also

[edit] References

Brown, Donald M. and Frederick R. Warren-Boulton, “Testing the Structure-Competition Relationship on Cross-Sectional Firm Data,” Discussion paper 88-6, Economic Analysis Group, U.S. Department of Justice, (May 11, 1988).
European Communities -- Commission, Tenth Report on Competition Policy. Luxembourg: Office for Official Publications of the European Communities. 1981.
Kwoka, John E., Jr. 1977. "Large Firm Dominance and Price-Cost Margins in Manufacturing Industries." Southern Economic Journal (July).
Warren-Boulton. Frederick R., "Implications of U.S. Experience with Horizontal Mergers and Takeovers for Canadian Competition Policy," in The Law and Economics of Competition Policy, Frank Mathewson, Michael Trebilcock and Michael Walker, eds.; The Fraser Institute, Vancouver, B.C., 1990.