Quantitative indicators

• the number of sellers operating in this market;
• shares occupied by sellers in a given product market (depending on the purposes of the analysis - with or without taking into account potential competitors);
• indicators of market concentration.

If an analysis of the state of the competitive environment in the market is carried out in connection with the initiation of a case for violation of antimonopoly legislation, it is most likely necessary to calculate the share based on the actual market structure (without taking into account potential competitors). If the analysis is performed to evaluate long-term and promising projects (mergers of business entities, creation of financial and industrial groups, acquisition of stakes, property, etc.), it is advisable to take into account the possible volumes of sales on the market by potential competitors (sellers), provided that entry into the market new business entities can be carried out in the shortest possible time (determined depending on the specific market, within 1–2 years) without significant additional costs. Then the sellers are ranked according to their shares in the market, the significance of the dispersion of the shares of participation of sellers in the market is analyzed and a conclusion is made about the equivalence (uniformity) of the presence of sellers on it.

It is desirable that conclusions based on the analysis of statistical data characterizing the situation for a specific period of time be supported by an analysis of the dynamics of the presence of certain sellers in the market over the last 3–5 years.

Market concentration indicators

A. Market concentration ratio (CR). It is calculated as a percentage of sales (delivery) of products by a certain number of largest sellers to the total volume of sales (delivery) on a given product market. It is recommended to use a concentration level of three ( CR- 3), four ( CR-4), six (CR- 6), eight (CR- 8), ten (C.R-10), 25 (CR- 25) largest sellers.

If we have a number of sellers ranked by their share of sales in the market then

B. Herfindahl–Hirschman market concentration index (HHJ). It is calculated as the sum of the squares of the shares occupied in the market by all sellers operating on it:

Calculation of the Herfindahl–Hirschman market concentration index

The Herfindahl-Hirschman coefficient shows what place and share in a given market is occupied by sellers who own small shares.

Based on the values ​​of concentration coefficients and Herfindahl–Hirshman indices, three types of markets are distinguished:

• Type I – highly concentrated markets. at 70% CR 100%; 2000 HHJ 10,000;
• Type II – moderately concentrated markets: at 45% CR HHJ 2000;
• III type – low concentrated markets: at CR 45%; HHJ

Indicators of market concentration make it possible to make a preliminary assessment of the degree of monopolization of the market, the uniformity (or unevenness) of the presence of economic entities on it. The more sellers with equal supply of products operate on the market, the lower the value of the corresponding indicators.

In foreign antimonopoly practice, concentration coefficients (and especially Herfindahl-Hirshman) are used only as a starting point in the study of a specific precedent and are never used as an argument for legal proceedings.

Qualitative indicators

Qualitative indicators of market structure are characterized by:

• the presence or absence (strength) of barriers to entry into the market for potential competitors, the degree of their surmountability;
• market openness for interregional and international trade.

Potential competitors that may be rivals in market penetration are:

• a) business entities that have the material and technical base, personnel, technologies for the production of this product, but for various reasons do not realize these opportunities;
• b) business entities that manufacture this product, but do not sell it on the territory of the product market under study;
• c) new business entities entering this product market.

Analysis of the possibilities of overcoming barriers requires an expert assessment of the strength of the barrier and trends in strengthening (weakening) of the barrier in relation to each indicator (factor) characterizing the strength of the barrier.

It is advisable to measure this assessment in points ranging from -5 (insurmountable barrier) to +5 (absence of a barrier), indicating the further trend of changes in the strength of the barrier (tendency to strengthen the barrier, tendency to weaken the barrier, no obvious trend). The scale (key) of expert assessments is presented in Fig. 10.10.

Rice. 10.10.

To analyze the possibilities of overcoming barriers to entry into the market, it is necessary to carry out an expert assessment of the impact on the strength of the barrier of each indicator (factor) from the set of indicators that determine the strength of the barrier (Table 10.3).

Concentration index CR- this is an indicator characterizing what market share is accounted for by a given number of the largest players.

Since the concept of “a given quantity” looks quite vague, after the letters CR a number is added, which shows how many of the largest market players we are talking about.

So the following are used (mostly) concentration indices CR: CR2, CR3, CR4, CR5, CR8, CR10.

In principle, the number of “biggest players” can be any. In everyday life, you often come across, for example, the “list of the 100 richest people”, “500 largest companies”, etc. It all depends on the goals that the researcher sets for himself.

CR Concentration Index Formula

Market concentration index CR (concentration ratio) is defined as the sum of the market shares of the n largest companies. The higher the value obtained, the closer it is to 100, the more monopolized the market.

Features of using the concentration index (CR) for practical purposes

Since the concentration index is an arithmetic sum, it is actually ignores the distribution structure of market shares between companies included in the calculation of the index.

Let's imagine that we have determined that in a given market CR5 = 80, that is, the five largest companies occupy 80% of the market. It seems that everything is clear, but...

This could be the situation “16+16+16+16+16”, or it could be “60+15+3+1+1”. Agree, in this situation we are talking about a fundamentally different distribution of “power of influence” on market processes! A good example to illustrate the disadvantages of the concentration index is practical example of calculating the concentration index CR .

Thus, the concentration index must be used as a kind of addition to other economic indicators, or the number (n) of companies must be selected in such a way as to objectively correspond to the structure of the distribution of forces in the market.

Due to the disadvantages listed above, the concentration index not used as a main indicator. In the United States, the Herfindahl-Hirschman index is used instead, and in the European Union, the Lind index (coefficient) is used.

For for purposes of general assessment situations, concentration index (CR) very acceptable. Any business plan contains a description of the “main competitors” and the market share they account for. In periodicals, the phrase “X% of the country’s population accounts for Y% of income” also makes it possible to quite clearly imagine the situation.

concentration product market production

An objective quantitative assessment of the level and dynamics of concentration makes it possible to identify monopolistic tendencies in specific markets, determine directions for the development of methods and methods for diagnosing the state of the market, its structure, the need for government intervention in these processes, and develop the main directions of regulation.

In most developed countries, state statistics bodies constantly monitor concentration processes in industry, both by industry and by main product groups. This is especially important for monitoring the market share of competitors and the possibilities of monopolization in specific markets.

Concentration measures are based on comparing the size of a firm with the size of the market in which it operates. The larger the size of firms compared to the scale of the entire market, the higher the concentration of producers in this market.

To analyze the level of concentration, both absolute and relative indicators are used, therefore, a distinction is made between absolute and relative concentration.

Absolute concentration characterizes the size of production of individual enterprises, and its level is determined by the following indicators: volume of output, average annual cost of fixed production assets, average number of employees.

Relative concentration is characterized by the distribution of total production in an industry between enterprises of different sizes. The level of relative concentration is determined by the following indicators: the share of an individual enterprise in the output of any product in the volume of its output in the industry as a whole, the enterprise’s share in the sales market, etc.

Thus, the quantitative assessment of concentration can be presented in two aspects. The first is the comparative value of the economic potential of the largest firms in the industry under consideration, which can be determined by the size of total assets. The second is the relative share of the industry product in the hands of the largest firms.

The main indicators of market concentration used in economic theory and antitrust practice are:

• - market concentration coefficient CR (Concentration Ratio);
• - Herfindahl-Hirschman coefficient (HHI);
• - relative concentration coefficient;
• - entropy coefficient;
• - Gini coefficient;
• - Rosenbluth (Hall-Tideman) coefficient
• - dispersion of market shares.

Concentration ratio CR (Concentration Ratio) - the ratio of product sales by a certain number of largest sellers to the total sales volume for the corresponding period, is defined as the sum of the market shares of the k largest market sellers:

where q i is the share of sales of the i-th company in total sales;

k is the number of firms for which the indicator is calculated.

This coefficient allows us to compare the concentration levels of various industries (markets) and analyze their dynamics, to determine due to the share of which enterprises (large, medium, small) there has been a regrouping of market power.

For the same number of largest firms, the higher the concentration index, the further the market is from the ideal of perfect competition. In Russia, this coefficient has been calculated since 1992 for the 3 (CR 3), 4 (CR 4), 8 (CR 8), 10 (CR 10) largest enterprises.

The information provided by the concentration index is far from sufficient to characterize the market. The concentration index does not tell us what the size of the firms that are not included in the k sample is, or the relative size of the firms in the sample. A significant disadvantage of the concentration indicator is that it is “insensitive” to different options for shares between competitors.

Therefore, in statistical practice, other indicators characterizing the level of concentration as a whole for the considered set of enterprises are becoming increasingly widespread.

A more accurate idea of ​​market concentration is given by the Herfindal-Hirshman Index, calculated as the sum of the squares of the shares of firms:

where q i is the share of sales of firms, %;

n is the number of firms in the market.

The Herfindahl-Hirschman index ranges from 0 (in the ideal case of perfect competition, when there are infinitely many sellers in the market, each of whom controls a tiny share of the market) to 1 (when there is only one firm in the market producing 100% of output). If we count market shares in % x, the index will take values ​​from 0 to 10,000 with an absolute monopoly. The higher the index value, the higher the concentration of sellers in the market and the stronger the market power of individual firms in the market.

The value of the coefficient decreases with increasing number of firms n and increases with increasing inequality between firms for any number of firms. When market shares are squared, the index gives greater weight to the performance of large firms than to small ones. This means that if accurate data on the market shares of very small firms is not available, the resulting error will not be large. However, it is important that the market share of the largest sellers is measured accurately. For industries where the number of enterprises is large, the Herfindahl-Hirschman index is calculated based on the 50 largest enterprises.

The main advantage of the Herfindahl-Hirschman coefficient is its ability to respond sensitively to the redistribution of shares between firms operating in the market.

In Russian practice, the concentration coefficient and the Herfindahl-Hirschman index are used together to assess the level of concentration in the industry:

• 1. HHI
• 2. 1000
• 3. HHI > 2000, CR 3 >70% - the level of concentration in the industry is high.

The relative concentration coefficient characterizes the ratio of the number of largest enterprises on the market and the share of product sales they control:

Where? - share of the number of largest enterprises on the market in the total number of enterprises, %;

Share of sales of these enterprises in the total volume of products sold, %.

When K > 1 there is no concentration, the market is competitive. When K = 1, there is a high degree of concentration in the market, and the market power of enterprises is great.

This indicator has significant advantages that distinguish it favorably from previous indices, since the market shares of the largest enterprises and the number of enterprises operating in the market are taken into account. At the same time, the problem of determining the number of largest enterprises included in this index still remains unresolved. Obviously, in each specific case, an independent determination of this value is required, which complicates the practical use of the relative concentration coefficient.

The entropy coefficient is the average share of enterprises operating on the market, weighted by the natural logarithm of its reciprocal:

where q i is the share of sales of the i-th company in the product market under consideration;

n is the number of economic entities in the market.

The entropy index is the inverse of the concentration coefficient: the higher its value, the lower the concentration of sellers in the market. Entropy measures the disorder of the distribution of shares between firms in the market: the higher the entropy indicator, the lower the ability of sellers to influence the market price.

The entropy coefficient characterizes the degree of market deconcentration and allows for a more in-depth study of the level and dynamics of concentration: the higher the indicator, the greater the economic uncertainty, the lower the level of concentration of sellers in the market.

The absolute values ​​of the entropy coefficient obtained using various calculation methods do not change the economic meaning and allow not only to analyze trends occurring in the same product market over a certain period, but also to compare different types of markets.

The Gini coefficient, used to analyze the structure of markets, characterizes the level of uneven distribution of market shares and is defined as the percentage of industry size per percentage of the number of firms operating in the market:

where D is the cumulative (cumulative) percentage of industry size;

N is the cumulative percentage of the number of firms in the market.

The higher the Gini coefficient, the higher the concentration in the industry. The coefficient is equal to 0 when all firms in the industry have equal market shares, and 1 when one firm accounts for the entire output, i.e. with an absolute monopoly. .

This coefficient has a significant drawback - it requires statistical data on inter-industry proportions, which significantly complicates the calculation procedure.

The Rosenbluth (Hall-Tideman) coefficient is calculated based on a comparison of the ranks of firms in the market and their market shares.

where NT is the concentration rank index;

R i is the rank of the company in the market (in descending order, the largest company has rank 1);

q i is the firm's share in the industry.

The Rosenbluth coefficient varies from 1/n to 1, where n is the number of enterprises in the industry. The maximum index value is 1 (under monopoly conditions), the minimum is 1/n. The lower the indicator, the less concentration in the market.

The advantage of this indicator is the ability to take into account the ratio of the size of enterprises - large sellers. This makes it possible to conduct a more in-depth analysis of the market structure of the industry.

To measure the degree of inequality in the size of firms operating in an industry, the dispersion of market shares indicator is used:

where q i is the firm’s market share;

The average market share of a firm is equal to;

n is the number of firms in the market.

The greater the uneven distribution of shares, the more concentrated the market, other things being equal. Dispersion does not provide a measure of the relative size of firms, so it should only be used as an aid to assess inequality in firm size rather than the level of concentration. But other things being equal (with the same number of firms in industries and approximately equal other indicators of concentration), it can also serve as an indirect indicator of concentration.

Ideally, the choice of indicator to measure concentration should be based on a framework that shows why seller concentration varies with firms' behavior. Since the most concentrated industries are often of greatest interest to the theory, this means that when measurement accuracy becomes important, different quantitative results may arise. Therefore, the best approach must be found empirically, taking into account which index best explains the significant behavioral relationships in the statistical analysis. When alternative outcome indices are used to predict firm behavior characteristics such as profits, neither indicator provides a clear advantage. Thus, the question of which indicator is the best remains open. Making sure that the concentration metric reflects economically meaningful market categories is even more important than choosing the metric itself.

Introduction. 2

Market definition. 5

Determination of the enterprise size indicator. 9

Producer concentration and economies of scale. eleven

Indicators of concentration and its assessment. 14

Conclusion. 22

Literature.. 24

Introduction

One of the main directions in the development of the economy for many years has been the consolidation of its subjects. Enterprises are no longer united only within an industry or state. Transnational associations are emerging.

Concentration of production in a general sense is the unification of factors of production around one center.

Geographic concentration is the desire of enterprises to settle and develop in places where other enterprises are already located.

Until relatively recently, the geographical concentration of enterprises was a phenomenon characteristic of the process of industrial development; the desire to achieve the highest profitability and, therefore, reduce costs forced us to look for the most suitable place for this:

Located next to the factors of production, namely sources of raw materials, sources of energy, semi-finished products produced by enterprises already established there, labor;

Favorable from a sales point of view: the presence of a consumer market, the ability to conveniently connect to a transport artery.

Today, these factors are no longer so important: the progress made in the field of transport (in technical terms - an increase in speed and reliability, in economic terms - a decrease in cost) makes enterprises, in terms of their location, less dependent on energy sources and raw materials and even on sales markets. Moreover, the concentration of population in cities, which naturally occurred along with the concentration of development of industrial enterprises, entailed such costs (social and domestic sphere) and negative consequences (decline of entire regions) for the local population and authorities that governments are trying to slow down the process geographical concentration and even stimulate industrial decentralization.

Economic concentration is the desire to increase the size of enterprises.

In principle, the process of economic concentration of enterprises seems to be largely independent of the economic and social system, since it is caused by the desire to ensure higher profitability by reducing costs, which naturally leads to an increase in the productive capacity of enterprises in order to achieve higher labor productivity. However, the forms, methods and target orientation of the process can differ significantly depending on the economic and social system under which it takes place.

In countries with a capitalist system, this process is associated with the desire to obtain maximum profit, that is, to achieve profitability only in the sense in which enterprise managers understand it. It is realized either through the enterprise's own expansion, an increase in the size or number of its institutions, or through more or less close integration with other enterprises. Enlarged enterprises can take various forms - trusts, cartels, concerns, holdings, conglomerates, etc. etc. In the field of agriculture, this process is manifested mainly in an increase in the size of farms, taking place spontaneously or within the framework of government programs (measures for the consolidation of farms). True, the concentration of agricultural structures meets resistance from the rural population, seeking to protect small family farms.

The process of concentration, which occurs differently in different sectors of the economy and in different countries, is, however, not endless. First of all, it has a technical limit: within a given market, a rational combination of production factors presupposes the presence of a certain optimal size of the enterprise, the excess of which entails a decrease in profitability as a result of the emergence and increase of negative phenomena (waste of resources, inconsistency of actions, complication of management structures). In addition, governments may be forced to suspend or limit the process of concentration to the extent that it is naturally accompanied by tendencies towards monopolization. The pursuit of maximum profit essentially forces enterprises to extract all possible benefits from the market and at the same time, at a certain stage of the concentration process, subjugate it to themselves, thereby reducing the influence of competition and even completely eliminating it. This is why antitrust laws exist, although they are enforced with greater or lesser degrees of determination and effectiveness.

In capitalist countries, the process of concentration has assumed an international scope and led to the formation of associations for which there are no boundaries and which today are usually called transnational corporations; Oil trusts are a particularly striking example.

Viewed from this perspective, the process of concentration of enterprises can be said to be developed with greater flexibility and at the same time more consistently, giving preference to the principles of free, natural expansion and technological compatibility of production units.

In any socio-economic system, the process of concentration can take two forms:

Horizontal concentration, in which enterprises operating at the same stage of a given production process are combined;

Vertical concentration, in which enterprises are combined that are involved in the business at different stages of the production process or are engaged in different but complementary activities.

Market Definition

Market is a basic concept in microeconomic analysis. It is in the market that firms interact. The parameters of market equilibrium and the possibility of changing it are of primary interest to the researcher. However, in practice, defining market boundaries is not easy. The market for product X is the totality of sellers and buyers of product X. When we talk about “product X,” we can mean either a single product or a group of substitute products.

One can err on the side of downplaying the number of goods that belong to a given market, arguing, for example, that the market involves the sale of only homogeneous goods. In this case, the market will be defined too narrowly, for example the market for Tide laundry detergent. The company producing the corresponding washing powder will look like a monopolist in such a market. In fact, despite the differences in consumer characteristics of different brands of washing powders and detergents, companies producing these products will actively compete with each other.

One can also err on the side of an overly broad interpretation of the market: two goods belong to the same market if they are substitutes. In this case, the monopoly power of the company in the market is underestimated, because goods always differ either in quality, or place of sale, or accessibility for a certain category of consumers, or the availability of information about the product. In the extreme, the entire economy can be represented as a single market, where different goods are to some extent substituted for each other. However, this approach is unacceptable for characterizing the forms and methods of competition and the monopoly power of firms in the market - which is the subject of the theory of industrial organization.

Market definition is related to the purpose of the study. For example, if coal mining is considered to study the effectiveness of energy policy, then the electricity market should be defined broadly, i.e. consider simultaneously the production of coal, gas, oil and nuclear energy production. If mergers of two coal mining companies are analyzed, then the coal industry should be interpreted in the narrowest sense.

Market identification will obviously depend on the breadth or narrowness of its boundaries. There are several types of market boundaries: commodity (product) boundaries, reflecting the ability of goods to replace each other in consumption; time boundaries associated with significant changes in supply and demand conditions over time; geographical boundaries. The necessary breadth or narrowness of boundaries in each specific case depends, firstly, on the characteristics of the product, and secondly, on the purposes of the analysis. Thus, for durable goods, the time boundaries of the market will be much wider and less defined than for goods of current consumption. For consumer goods, one market will include a larger number of product items than for industrial and technical goods. Determining the geographic boundaries of the market depends on the actual intensity of competition between sellers in the national or global market, firstly, and on the height of the barriers to entry into the regional market of “external” sellers, secondly.

One of the difficult questions is the question of the relationship between the market and the industry. An industry is a collection of enterprises that produce similar products, using similar resources and similar technologies. The differences between a market and an industry are based on the fact that the market is united by the need it satisfies, and the industry is united by the nature of the technologies used. The identification of industry and market is, as a rule, unacceptable - goods sold by industry enterprises may be more or less close substitutes, but they may also be completely independent goods. In turn, the market and the sub-industry, distinguished within a specific industry on the basis of the production of close substitute goods, can sometimes be considered as interchangeable concepts. This simplification is all the more acceptable the more specialized the enterprises in the sub-industry are. When we talk further about the industry (market), we will mean precisely the enterprises of the sub-industry, united by the production of replaceable products and at the same time competing with each other in the sale of these products.

J. Robinson proposed the following definition of the market, which is used with slight variations by the antimonopoly committees of many countries. The market includes a homogeneous product and its substitutes until a sharp break is found in the chain of product substitutes. The degree of substitution (substitution) is characterized by the cross-price elasticity of demand. As soon as the cross elasticity becomes less than a certain specified value, we can talk about a break in the chain of commodity substitutes, and therefore about the market boundary. By specifying different cross-elasticity values, we can obtain different market sizes.

In the countries of the European Economic Community, other criteria for identifying a market are used.

1. Indicator of changes in revenue when prices change. Let, for example, the price of product A increase. Let's consider how the revenue of producers of this product has changed. If revenue has increased (or, accordingly, the increase in the profit of sellers is positive), the market is limited only by product A. If revenue has decreased (the increase in profit of producers is negative or at least non-positive), then, therefore, there is a close substitute, product B. Therefore, it is inappropriate to talk about the market product A, you need to look for product B and check the product market again using the proposed method. Thus, the dynamics of revenue and profit of manufacturing firms with a sufficiently long rise in prices indicates the boundaries of the market. This criterion is based on the principle of direct price elasticity of demand. Given a sufficiently aggregated definition of a market, demand in such a market should be quite inelastic. In this case, an increase in sellers' prices leads to an increase in their revenue.

2. Correlation of commodity prices over time. A positive correlation between the movement of prices of goods over a long period of time (5-10 years) indicates that goods are stable substitutes, i.e. constitute one market. It is easy to see that this criterion, like the definition of the market used by J. Robinson, is based on the concept of cross price elasticity. If goods A and B are close substitutes, an increase in the price of good A leads to an increase in the demand for good B and, other things being equal, to an increase in the price of good B.

3. Geographical limitation of the market. As a criterion for different territories to belong to the same geographic market, the same conditions of competition are identified, such as the interconnectedness of demand, the absence of customs barriers, similar national (local) preferences, insignificant differences in prices, relatively low transport costs within the region, and substitutability in supply.

Having identified the boundaries of the market, we must identify the firms producing goods in this market. How accurately the circle of enterprises operating in our market is determined can be checked using two indicators: the specialization indicator and the coverage indicator.

The specialization indicator is the ratio of the sales volume of a given product to the sales volume of all products by firms classified by us in a given industry. A similar indicator can be calculated for an individual enterprise.

The coverage indicator is the ratio of the sales volume of a given product by enterprises classified by us in a given industry to the total sales volume of a given product by all industries.

A study of the concentration of sellers in the market will lead to qualitative results if the specialization indicator and the coverage indicator are large enough.

Determining the enterprise size indicator

Indicators of the level of concentration are based on a comparison of the size of the enterprise (firm) with the size of the market in which it operates. The higher the size of firms compared to the scale of the entire market, the higher the concentration of producers (sellers) in this market.

The problem is to answer the question: what can be considered the size of an enterprise? There are four main indicators that characterize the size of a firm relative to the size of the market:

The share of the company's sales in the market sales volume;

The share of people employed at the enterprise in the total number of people employed in the production of a given product;

The share of the value of the firm's assets in the value of the assets of all firms operating in the market in question;

The share of added value at the enterprise in the sum of added value of all manufacturers operating on the market.

The results of calculations of concentration indicators may depend significantly on the choice of firm size measure. For example, if large firms use more capital-intensive technologies than small firms, then the level of concentration measured by asset values ​​will be greater than the concentration level for the same industry measured by sales or employment. The level of concentration expressed in terms of value added will be influenced by vertical integration. If large firms are more integrated than medium and small firms, then using value added as a proxy for firm size will yield a higher level of concentration than sales volume. In addition, there is the problem of diversification: for firms whose activities take place in different sub-sectors and in different markets, it is difficult to isolate the employment, sales volume or value added that comes from a given market.

Sometimes the size of the largest firms can be a measure of market concentration. It is this criterion that underlies the determination of a dominant position in Russia (a sign of dominance is control of at least 35% of the market), in the UK (respectively, at least 25% of the market). .

Concentration of producers and economies of scale

The concentration of producers in industry markets leads to an increase in the size of firms. Following Wiener's study of cost curves, in the analysis of the industrial organization of markets it is generally accepted that the size of firms and their number in the industry are related to the level of returns to scale of production. This usually manifests itself in the fact that large market entities manage to produce and sell products at lower average costs than relatively small manufacturers can afford. Cost savings with increased scale of production are called economies of scale. Quite often, economies of scale are analyzed from three perspectives:

release of one type of product;

release of all products of one enterprise;

production of products of a company consisting of several production units.

Each of these aspects requires special consideration. We will note only general points. These include, first of all, the fact that large firms are able to reduce interruptions in the production process. This is expressed in a reduction in equipment setup time per unit of product produced, in a more rational organization of production activities, and in an increase in the experience of the company’s employees.

In addition, as production scale increases, unit costs decrease due to the fact that, although overhead costs in efficiently operating firms increase, their share in unit costs decreases. Wholesale purchasing of resources allows large firms, on the one hand, to achieve lower prices for resources, and on the other hand, to use them more rationally. In addition, large companies have established stable relationships with both suppliers and distribution organizations and transport companies.

It should also be borne in mind that large companies, as a rule, concentrate more qualified engineers, specialists, and workers, since they are able to provide a decent level of remuneration and provide the opportunity to work on advanced technology.

At the same time, the growth of the size of the enterprise is not unlimited. Learning curves become flatter as a firm grows. The growth of remuneration for labor is gradually stopping. The need for labor leads to an expansion of the geography of its attraction. The rationality of resource processing using traditional technology is gradually achieving a certain stabilization. The speed of delivery of resources to the company decreases and the delivery of finished products becomes more complicated. And managing a large division is more difficult than a small one. Consequently, all types of expenses increase. This means that economies of scale have their limits. Hence, there is a need for an optimal combination of the company’s growth rate and changes in production costs per unit of output. As foreign researchers note, the shape of the graph of the long-term average cost function, depending on the growth of production volume, becomes as shown in Fig. 2

Fig. 2 Typical graph of the long-term average cost function depending on the growth of production volume:

LRAC - long-run average cost curve

Up to a certain minimum efficient level of output (in Fig. 2 this is segment OA), the effect of scale is significant, which is manifested in a decrease in average costs as production volumes and output scales increase. With the help of organizational and technological transformations, it is possible to slightly increase the size of the company beyond the OA segment, but at point B the negative consequences of excessive growth in the scale of production occur and an increase in average costs will be observed.

Thus, the effect of scale is always historically specific and depends on how quickly production technology changes, how intensively the company’s management system is improved, and how accurately the company’s top management grasps the point at which it is necessary to change the attitude towards increasing the scale of production.

Not all firms benefit from economies of scale, but only a lucky few. And those firms that succeed obviously have a different mechanism for redistributing resources than others. Consequently, in the structure of the industry market there is no homogeneity in the nature of firms, at least in relation to the extent to which each of them is able to take advantage of economies of scale.

Economies of scale are shown schematically in Figure 3.

Indicators of concentration and its assessment

The concentration index is measured as the sum of the market shares of the largest firms operating in the market:

where Yi is the market share of the i-th company;

k is the number of firms for which this indicator is calculated.

The concentration index measures the sum of the shares of the k largest firms in the industry (with k , n is the number of firms in the industry). Market share is measured in relative shares (0

This feature of the concentration index is associated with possible inaccuracy in its use.

The insufficiency of the concentration index to characterize the market power potential of firms is explained by the fact that it does not reflect the distribution of shares both within the group of largest firms and outside it - between outsider firms. To solve this problem, the countries of the European Economic Community actively use the Lind index, which characterizes the ratio of the shares of the largest firms in the market. In addition, other concentration measures provide additional information about the distribution of the market among firms.

The Herfindahl-Hirschman index is defined as the sum of the squared shares of all firms operating in the market:

The index takes values ​​from 0 (in the ideal case of perfect competition, when there are infinitely many sellers in the market, each of whom controls an insignificant share of the market) to 1 (when there is only one firm in the market producing 100% of output). If we count market shares as a percentage, the index will take values ​​from 0 to 10,000. The higher the index value, the higher the concentration of sellers in the market.

Since 1982, the Herfindahl-Hirschman Index has served as the main guideline for US antitrust policy. Its main advantage is the ability to react sensitively to the redistribution of shares between firms operating in the market. Table 4 shows how the value of the Herfindahl-Hirschman index changes as the share of the largest firm in the market increases. If the shares of all firms are the same, then HHI=1/n

An increase in the share of the largest company in the market, for example from 40 to 70%, causes an increase in the value of the Herfindahl-Hirschman index much more significant than from 1 to 30% (0.16-0.49 versus 0.0001-0.09, by 33% points versus 8.99). This growth adequately reflects the increase in monopoly power when a large firm captures an increasing share of the market. The Herfindahl-Hirschman index provides information about the comparative ability of firms to influence the market under different market structures. The market power of a dominant firm in a competitive environment that controls 50% of the market is comparable to the market power of each of the four oligopolistic sellers. Likewise, on average, each of the duopolists that control the market will have approximately the same power to influence the market price as the dominant firm that controls 70% of the market.

Table 1. Dependence of the Herfindahl-Hirschman index on the market share of the dominant firm

The value of the Herfindahl-Hirschman index is directly related to the dispersion of firms' market shares, so that:

where n is the number of firms in the market;

s2 is an indicator of the dispersion of the firm’s market shares, equal to ;

where Y is the average share of the company in the market, equal to 1/n.

The above formula allows us to distinguish between the influence on the Herfindahl-Hirschman index of the number of firms in the market and the distribution of the market between them. If all firms in a market control the same share, the dispersion index is zero and the value of the Herfindahl-Hirschman index is inversely proportional to the number of firms in the market. Given a constant number of firms in the market, the more their shares differ, the higher the index value.

The Herfindahl-Hirschman index, due to its sensitivity to changes in the market share of a firm, acquires the ability to indirectly indicate the amount of economic profit obtained as a result of the exercise of monopoly power.

Below we will show the relationship between the index value and Lerner’s indicator of monopoly power.

The entropy index shows the average of the logarithm of the inverse of market share, weighted by the market shares of firms:

The entropy coefficient is the inverse of concentration: the higher its value, the lower the concentration of sellers in the market.

To measure the degree of inequality in the size of firms operating in the market, an indicator of the dispersion of the logarithms of the market shares of firms is used, the dispersion indicator:

where Yi is the firm's market share;

Y is the average share of the company in the market, equal to 1/n;

n is the number of firms in the market.

The greater the spread, the higher the concentration of sellers in the market. However, the spread of logarithms does not characterize the relative size of firms; for a market with two firms of the same size and for a market with 100 firms of the same size, the spread of logarithms in both cases will be the same and equal to zero, but the level of concentration will obviously be different. Therefore, the logarithm spread can only be used as an aid, more for estimating inequality in firm size than for estimating the level of concentration.

The Gini index is a statistical indicator of the form

where Yi is the production volume of the i-th company;

Yj is the production volume of the j-th company;

n is the total number of firms.

The Gini index is conveniently illustrated using the Lorenz curve. The Lorenz curve, reflecting the uneven distribution of any attribute, for the case of concentration of sellers in the market, shows the relationship between the percentage of firms in the market and the market share, calculated cumulatively, from the smallest to the largest firms.

The Gini index can be expressed as follows:

Calculation of the Gini index shows that in this case it is approximately 0.18. The higher the Gini index, the higher the uneven distribution of market shares between sellers, and, therefore, other things being equal, the higher the concentration index.

When using the Gini index to characterize the concentration of sellers in a market, two important points should be taken into account. The first relates to a conceptual flaw in the index. It characterizes, like the dispersion of logarithms of shares, the level of uneven distribution of market shares. Therefore, for a hypothetical competitive market, where 10,000 firms divide the market into 10,000 equal shares, and for a duopoly market, where two firms divide the market in half, the Gini index will be the same. The second point is related to the complexity of calculating the Gini index: to determine it, you need to know the shares of all firms in the industry, including the smallest ones.

In economic theory and practice, there is no single indicator of the level of concentration in an industry. Different studies and for different purposes may use different measures of seller concentration in a market. To evaluate the merits of the concentration indicator, the rules proposed by Hanna and Kay are applied.

An ideal sales force concentration measure should satisfy the following requirements.

Let the concentration indicator be calculated not for n firms in the market, but for k firms at k< n, причем фирмы ранжированы по убыванию рыночной доли. Если концентрация продавцов на рынке A выше, чем на рынке В, значение идеального показателя для рынка А должно быть больше при любом k.

If the share of a large firm increases at the expense of a small firm, then the concentration indicator increases.

The entry of a new firm into the market reduces the level of concentration (provided that the size of the firm is below some significant level).

Mergers and acquisitions increase the degree of concentration.

The Herfindahl-Hirschman and entropy indices meet all of the above conditions. Other indices are somewhat consistent with these conditions.

Table 2 discusses scientific approaches to managing production concentration.

Table 2 – Main elements of scientific approaches to managing production concentration

Sign	Technological	Typological	System
			System-Complex	System-Synergetic
Basis of classification	Production technology	Type of enterprises	Directions for increasing production volume	System elements
Object of study	Part of the enterprise, its operating subsystem	Enterprise as a whole
Relationship	Note the organizational connection between concentration and other forms of production organization
The nature of the manifestation of forms	Specific forms of production concentration	Unified nature of concentration forms	Universal character, suggesting a multivariate state	Universal nature, taking into account the specificity of the functioning of organizations
Specifics of development	There are industry, market and product specifics	Absent	Manifests itself in a variety of combinations of forms	Polymorphic nature of the combination of forms, taking into account the specifics of relationships
Development direction	From simple forms (aggregate) to more complex (factory)	The process is reflected in one of the final forms, which does not imply further development.	Assumes many states, with the possibility of transitioning into each other.	Assumes many states directed in a single direction of development
The dominant form of the production concentration effect	Economies of scale		Economies of production scale, integration effect	synergy effect, effect of production scale
Economies of scale	Achieved by eliminating bottlenecks in the technological chain.	Achieved through the integrated use of resources	Achieved through efficient organization of the production process	Based on the complementary effect of the resources involved.

Conclusion

Market concentration (concentration of sellers or buyers) refers to the density of market structures and the combination of different shares of market agents in terms of supply and demand. A small number of firms on the market, and therefore their low density, indicates a high level of concentration of sellers. In the limiting case, the density is equal to unity, i.e. corresponds to a monopoly market. For a given number of firms in the market, the more they differ from each other in the volume of sales of goods, the higher the level of concentration of sellers in the market.

Similar dependencies are typical for assessing the concentration of buyers in the market. The fewer buyers in the market, the higher the level of their concentration. In the limiting case, the density of buyers is equal to unity, i.e. corresponds to a monopsony market. For a given number of buyers, the more they differ in the volume of demand, the higher the concentration of buyers in the market.

Methods for analyzing the evolution of the structure (from the position of concentration) for the market and production are different. In the first case, the focus is on competition and the potential for market capture. The second measures either the distribution of production entities by size or by geography.

It can be assumed that in these conditions, the obvious directions of market evolution will be both the rapid growth in the number of new small companies, which include a single enterprise, and the further disaggregation of very large old production structures. Under equal conditions, this will lead to a further decrease in concentration, which is partly what is observed today.

Summarizing what is stated in this test work, it is easy to come to the conclusion that the concentration of production is influenced by a combination of many factors. Their number and ratio, in relation to the conditions of a particular time and place, may be different. Production concentration factors are dynamic. Changes in their composition and character occur due to changes in factors. Their number and ratio depend on the characteristics of the economic system of society and the nature of the social system as a whole, the progressive development of scientific and technological progress, the economic and geographical conditions of a particular territory, and many others.

The sphere of intangible production, or, as it is sometimes called, the service sector, is beginning to acquire an increasing share in the economy of most countries. It should rightfully be included in social production, since it is important for society to produce not only the means of life, but also to carry out the production of life itself in all its forms. That is why such areas as healthcare, education, information services, and others are becoming increasingly important as part of social production. Objects representing these and other spheres of social production are also subject to concentration in geographic space with all the inherent laws of this process.

Literature

1. L.V. Roy, V.P. Tretyak “Analysis of industry markets”, Textbook, M.: Infra-M, 2008. - 442 p.

2. Yu.V. Taranukha "Economics of industrial markets", Proc. manual, M.: Business and service, 2002. - 240s

3. Journal "Problems of theory and practice of management", 5/2004.

4. Magazine "Banking", 8/2007

Market concentration is the degree of predominance of one or more independent economic entities in the system of sales of interchangeable goods in one industry market.

Calculation of the degree of market concentration and the share of firms is necessary:

• to determine a dominant position;
• for inclusion in the Register of economic entities with a market share of more than 35%;
• in order to identify concerted actions of firms that limit competition;
• in order to identify abuses of the dominant position of firms that are prosecuted by law;
• to develop a policy of demonopolization in the industry market and support for small businesses;
• for state control over the creation, reorganization, liquidation of commercial organizations and their associations;
• for state control over compliance with antimonopoly legislation when acquiring shares (stakes) in the authorized capital of commercial organizations.

Concentration indicators characterize the degree of uneven distribution of production volumes or sales of goods between firms, as well as the possibility of each of them influencing the general conditions of circulation of goods on the industry market. The lower the number of firms operating in a given market, the higher the level of concentration. If there are the same number of firms in markets, then the market will be characterized by greater concentration with firms that differ more widely in size. The fewer firms operating in the market, the easier it is for them to realize their mutual dependence on each other, and the sooner they will cooperate or collude. Therefore, it can be assumed that the higher the level of concentration, the less competitive the market will be.

Concentration measures are based on comparing the size of a firm with the size of the market in which it operates. The higher the size of the firm compared to the scale of the entire market, the higher the concentration of producers (sellers) in this market. The results of the calculation may significantly depend on the choice of measure of the “size” of the company. The size of the largest firms in itself can serve as a characteristic of market concentration. It is this criterion that underlies the determination of the monopoly situation in Russia.

Depending on the calculation method and economic content, all concentration indicators can be divided into absolute and relative.

Absolute concentration measurement – assessment of the number of firms in the market and the total share attributable to a limited number of units. There are direct and summary quantitative indicators:

· Concentration factor CR i (concentration ratio) is a direct indicator.

It is measured as the sum of the market shares of the largest firms operating in the market; it can be measured both in shares and in percentages.

where k is the number of firms for which the indicator is calculated.

For the same number of largest firms, the higher the concentration index, the further the market is from the ideal of perfect competition, the greater the market power of these firms.

This indicator is required for statistical monitoring of market conditions in most industrialized countries of the world, and in different countries the shares of different numbers of enterprises are calculated. In the USA and France, these shares are 4, 8, 20, 50, 100 largest companies. In Germany, England, Canada, data is taken on 3, 6, 10 enterprises in the industry. In Russia, this indicator began to be calculated and published in official statistics since 1992 for the 3rd, 4th, 6th, 8th largest sellers.

This coefficient allows not only to compare different industries or markets by concentration level, but also to analyze the dynamics of concentration, to determine due to the shares of which enterprises (large, medium or small) there has been a regrouping of forces in the market.

But the concentration coefficient is “insensitive” to various options for the distribution of shares between competitors. For example, CR 4 will be the same and equal to 80% in two different cases: when one enterprise controls 77% of the market, and the other three each have 1%, and when four equally powerful enterprises own 20% of the market each. In addition, the indicator does not indicate the size of firms that were not included in the k sample. Therefore, indicators characterizing the level of concentration as a whole for all enterprises are increasingly being used.

· The Lind L index is a direct indicator.

The index determines the degree of inequality between leading enterprises in the market and is used as the “border” of the oligopoly.

where: K – number of large suppliers from 2 to N;

Q i – the ratio between the average market share of I suppliers and the share of K-i suppliers;

i is the number of leading suppliers among K large suppliers.

where A i is the total market share attributable to I suppliers;

A k – market share attributable to K large suppliers.

The Lind index is used as a determinant of the oligopoly boundary as follows: L is calculated for K = 2, K = 3 and so on until L k +1>L k, that is, until the first violation of continuity of the indicator is obtained L. The “border” is considered established when the value L k is reached - the minimum size compared to L k +1. The defined boundary can characterize the market from the point of view of the presence of a rigid or loose oligopoly on it, thereby making it possible to empirically calculate the expected range of entities that can carry out concerted actions aimed at limiting competition.

· Herfindahl – Hirshman Index HHI (Herfindahl – Hirshman Index) is a summary indicator.

It takes into account both the number of firms in the market and the inequality of their position. It is defined as the sum of the squares of the shares of all firms operating in the market:

The index ranges from 0, in the ideal case of perfect competition, when there are many firms controlling a tiny share of the market, to 1, when there is only one firm in the market producing 100% of output. Consequently, the higher the index value, the higher the concentration of sellers in the market, the higher the inequality between enterprises. When market shares are squared, the index gives a higher weight to the indicators of large firms than to small ones, that is, if data on the market shares of very small enterprises is not available, then the resulting error will be small.

The main advantage of the index is its sensitive response to the redistribution of shares between companies operating in the market. An increase in the share of the largest firm in the market leads to a much significant increase in the index, which reflects the increase in power in a geometric progression.

The Herfindahl–Hirschman index provides comparable information about the ability of firms to influence the market under different market structures: the market power of the dominant firm in a competitive environment, controlling 50% of the market, is comparable to the market power of each of the four oligopolists. Each duopolist that controls the market has the same power as the dominant firm that controls 70% of the market.

Since 1982, the Herfindahl-Hirschman index has served as the main guideline in the implementation of US antitrust policy, as well as in assessing the admissibility of various types of mergers and acquisitions of companies. According to different meanings, three types of markets are distinguished:

Table 3.1.

Market classification.

Type of markets	CR 3 and HHI values	CR 4 and HHI values	Permissibility of mergers and acquisitions
Highly concentrated	70%	80%	If the merger increases the HHI by 50 points, it is allowed. If it is more than 100 points, it is prohibited. An increase in HHI of 51-100 points is grounds for further study of the permissibility of the merger.
Medium concentrated	45%	45%	If HHI>1400, the market is “dangerously small”, an additional check for the admissibility of the merger.
Low concentrated	CR 3<45% HHI<1000	CR 3<45% HHI<1000	Unimpededly allowed

The value of the Herfinjal-Hirschman index is directly related to the dispersion indicator of firms’ shares in the market, so that: . Therefore, if all firms in a market control the same share, the dispersion index is zero and the value of the index is inversely proportional to the number of firms in the market.

The disadvantage of the index is the need for a complete analytical base about all market entities, which is quite problematic given the lack of information.

· The Hall–Teidman coefficient HT (Rosen–Bluth) is a summary indicator.

It is calculated based on a comparison of the ranks of enterprises in the market and their market shares:

where: R is the rank of the company in the market in descending order, the rank of the largest company is 1;

s i is the share of sales of the i –th company.

The maximum value of the indicator is 1 under monopoly conditions. Its minimum value is 1/n. The advantage is the ability to take into account the ratio of the size of firms - large sellers, which helps to carry out a more in-depth analysis of the market structure of the market.

• Entropy coefficient E – total indicator

The entropy coefficient serves to measure the degree of uncertainty in the market and allows for a more in-depth study of the level and dynamics of concentration: the greater the value of E, the greater the economic uncertainty and the lower the level of concentration of sellers in the market. There are two options for calculating the value of E. Calculations are carried out both for the analysis of trends existing in the same product market over a certain period of time, and for a comparative analysis of different types of markets.

· Concentration curve.

A graphical representation of absolute concentration indicators is a concentration curve. Along the horizontal axis is the cumulative number of firms that are tentatively ranked by size from largest to smallest. The y-axis shows the cumulative total of the percentage of output (or percentage of sales) of products. Concentration curves are convex upward because firms are ranked from largest to smallest along the x-axis.

If all firms are the same size, then the concentration curve will have the form of a bisector. Concentration will be higher in the market for which the concentration curve throughout lies above the concentration curve of the other market. That is, x large firms in one market control a larger percentage of product sales than x large firms in another market, for any value of x. To compare the level of concentration in markets B and C, it is necessary to enter estimates of the significance of various sections of the curves.

Rice. 3.1. Concentration curves.

Relative concentration measurement - this is an analysis of the proportionality of the market, which represents the relationship between its various elements, the uniform distribution of shares between them.

• The coefficient of variation

The more unevenly the shares are distributed between enterprises, the more noticeable will be the tendency to reduce competition and increase market monopolization.

; Where: ; .

The lower the coefficient of variation, the higher the degree of uniformity in the distribution of production or sales between enterprises and the lower the level of concentration. With a greater deviation from the average value of the extreme values ​​of the series, the variation is lower, therefore, the level of concentration is higher.

This indicator is used only as an auxiliary tool for assessing inequality in the size of firms, and not for assessing the level of concentration, since, for example, for a market with two and with 100 firms of the same size, the dispersion will be the same and equal to zero, but the level of concentration will be different. With a low coefficient of variation, entities with a dominant position or monopoly power may not be identified.

• Dispersion of logarithms of market shares.

Characterizes the degree of uniformity in the distribution of sales volumes between firms. The greater the amount of dispersion, the more uneven and more concentrated the market is.

• Lorenz curve. Gini coefficient.

A graphical representation of relative concentration is the Lorenz curve.

Unlike the concentration curve, constructing a Lorenz curve requires information about all the firms in the industry. The y-axis shows the cumulative values ​​of firms' market shares, calculated cumulatively from the smallest to the largest and arranged in ascending order. On the x-axis is the percentage of market entities, ordered in ascending order.

Market share,

Cumulative total

Percentage of firms

cumulative total

Rice. 3.2. Lorenz curve

If we consider a market in which all firms are of the same size, then we obtain a line of absolute equality - a bisector. The area between the straight line denoting absolute equality and the Lorenz curve reflects the degree of inequality of market subjects. The lower the concentration, the more the Lorenz curve approaches the diagonal.

A statistical indicator that quantitatively interprets the Lorenz graph - the Gini coefficient, is the ratio of the area bounded by the actual Lorenz curve and the straight line of absolute equality to the area of ​​the triangle bounded by the straight line of absolute equality and the coordinate axes. The higher the Gini coefficient, the greater the uneven distribution of market shares between firms, and, consequently, the higher the level of concentration. If we have a monopoly market, then the Lorenz curve will coincide with the axes, so that the Gini coefficient will be equal to 1. If we have a competitive market in which all firms have the same size, then the Gini coefficient will be equal to 0.

There are various formulas for calculating the Gini coefficient, one of them is:

The disadvantage of the Gini index is its characterization of the level of uneven distribution of market shares. Thus, for a hypothetical competitive market, where 10,000 firms divide the market into 10,000 equal parts, and for a duopoly market, where two firms divide the market in half, the Gini index is the same. In addition, this index is difficult to calculate, since it is necessary to know the shares of all firms in the industry, including the smallest ones.

The concentration of sellers in a market is extremely important for determining the market structure and, accordingly, the market power of firms operating in a given market. However, the concentration of sellers in itself does not determine the level of market power. Only with sufficiently high barriers to entry into an industry can concentration of sellers realize market power.

§ 3.4 . Barriers to entry and exit from the market

Barriers to entry into the market are factors of an objective or subjective nature that make it difficult, and sometimes impossible, for new firms to start a business in the chosen industry. Thanks to entry barriers, firms already operating in the market do not have to fear competition. The presence of a barrier to exit from the industry also leads to the same results, if exit from the industry in the event of failure in the market is associated, for example, with significant costs.

Markets can be classified according to the level of barriers as follows:

Table 3.2.

Classification of markets.

Market type by entry level	Market characteristics
Easy	Characterized by competition close to perfect. Firms operating on it are actually indifferent to the possibility of the emergence of new competitors, high mobility of capital, freedom to acquire resources, as well as prices tending to equilibrium. In such markets there are no firms with significant and sustainable cost advantages.
Slightly difficult	Individual operating firms may have tangible cost advantages, usually realized through minimal price increases relative to costs. However, from a long-term perspective, it is more profitable for these firms to allow newcomers to enter the market rather than incur the costs of erecting entry barriers; therefore, in any given short-term period, there is a gap between the corresponding prices and marginal costs
Very difficult	Established firms strive to make it as difficult as possible for newcomers to enter; there are clearly dominant firms operating here.
Blocked	The number of participants is stable; usually a natural monopolist company operates on them.

It is the presence of barriers to entry, combined with the high level of concentration of producers in the industry market, that provides them with market power, which allows firms to raise prices above marginal costs and make economic profits not only in the short term, but also in the long term. Where barriers to entry do not exist or are weak, firms, even with high market concentration, are forced to take into account competition from actual or potential rivals.

All possible barriers, depending on the subject establishing them, are non-strategic or strategic in nature, which makes it possible to determine the source or manifestation of market power.

Fig.3.3 Classification of barriers to entry for firms.

Non-strategic barriers

Barriers generated by the objective characteristics of the industry market, associated with industry characteristics in production technology, the nature of consumer preferences, demand dynamics, foreign competition, institutional reasons, control of the necessary resource for the production of a given product, the need for large one-time investments or the incurrence of high transport costs are non-strategic barriers. Let's look at a number of them.

· Institutional (administrative) barriers

Institutional barriers to market entry and exit can serve as significant obstacles preventing potential competitors from entering the market. Institutional barriers to entry into the market include a system of licensing the activities of firms, issuing permits for certain types of business, distribution of quotas between firms, certification of equipment and products, regulations for the import and export of resources, a system of state control over prices and profitability levels. Institutional barriers to exiting the industry include the costs associated with the process of termination and bankruptcy for the owners of the company.

A feature of modern Russian markets is the difficulty of enterprises entering the market, high associated costs, which impede effective competition and the strengthening of market power. The removal of a number of administrative restrictions, even without a special antimonopoly policy, would contribute to the development of effective competition in many industry markets and reduce the market power of firms.

Administrative price regulation is a phenomenon that violates competitive market conditions. If prices in a particular market are controlled or regulated by the local administration or antimonopoly authorities, the result is that the emergence of new market entities is inhibited.

· Quotas. Subsidies. Funding needs.

If the subsidy is given to existing business entities, and not to market newcomers, then it serves as a barrier to entry, since inefficient companies will be able to survive at the expense of more efficient ones that do not receive the subsidy.

State and municipal loans, subsidies, budgetary and extra-budgetary subsidies remain important sources of financing, but they are received mainly by existing firms, and not by new companies. Established companies with greater access to government loans and orders, financial support and subsidies will be able to more easily diversify their business into new geographic and product markets. Consequently, access to finance is a significant barrier to entry for newcomers to the market.

· Activities of corrupt and criminal structures.

Access to certain markets in various regions is controlled by criminal and corrupt groups, which is a significant barrier to entry of new business entities into the market.

· Economies of scale

This source of a firm's power inherently comes from technology, which provides economies of scale. This effect exists in cases where, as the volume of output increases, average total costs decrease, so that only a few or one large firm can operate efficiently (with minimal costs). Therefore, the indicator characterizing the entry barrier caused by positive returns to scale is the so-called minimum efficient output (MES, Minimum efficient size), which represents the volume of output at which positive returns to scale are replaced by constant or decreasing (“L-shaped” and "U-shaped" average cost function). (Fig. 3.4.)

The “L-shaped” average cost curve is characteristic of a natural monopoly that satisfies all market demand Q at costs C(Q), and has the property of subadditivity of costs: , where n is the number of possible firms in the market with the corresponding output volume q i, that is, the distribution of total demand across several firms will increase the cost of producing a unit of goods. This phenomenon leads to extremely high barriers to entry and, consequently, to the existence of a single company with very large market power. Indeed, one of the arguments most often made in defense of monopolizing an industry market is that monopolization prevents wasteful duplication of fixed costs.

MES MES

Rice. 3.4. “L-shaped” and “U-shaped” average cost function

Positive returns to scale can also be a barrier with a normal “U-shaped” cost curve, for example, when the volume of market demand is very small relative to the MEI. The MEV indicator is usually determined not in units characterizing quantity, but in relation to MEV to market capacity.

Then, in a state of long-term equilibrium, the number of firms operating in the industry is determined by the ratio of the volume of market demand at a price equal to the minimum value of long-term average costs to the size of the minimum efficient output.

If there are more than n firms in the market, then some of them will produce goods at costs greater than the minimum value of long-term average costs, and price competition between them will lead to a reduction in price to the level of minimum average costs, so that a number of firms will suffer losses and will be forced to leave the market.

To determine the height of barriers, knowledge about the difference between the level of average costs of large and small firms in the industry is required. The higher this difference, the greater the barriers to entry caused by positive returns to scale.

· Foreign competition

In an open economy, foreign competition reduces industry concentration, the bargaining power of domestic firms, and the degree of market imperfection. The height of barriers to entry into the market depends on the rate of import tariffs - the lower the import tariff, the lower the barriers to entry for a foreign competitor.

An import tariff has mixed effects on social welfare. On the one hand, it leads to a reduction in consumer profits, and on the other, to an increase in sales and profits of domestic producers. There is a possibility that the gains from increased profits for domestic producers will outweigh the losses to consumers, leading to a non-zero import tariff. Thus, society may be interested in non-zero barriers to foreign competition.

· Demand growth rate and demand elasticity

Demand characteristics can create barriers to entry into an industry because they are largely outside the control of firms but influence their behavior, primarily by limiting their degree of freedom to set prices.

The level of concentration is in the opposite relationship with the growth rate of demand: the higher the growth rate of demand, the easier it is for new firms to enter the industry. Price elasticity of demand limits the price increases above marginal cost available to firms operating in an imperfectly competitive market. If demand is inelastic, firms can increase price relative to cost to a greater extent than if demand is elastic. The lower the elasticity of demand, the easier it is for the dominant firm to simultaneously restrict entry into an industry and earn economic profits.

Strategic barriers

Undoubtedly, in modern conditions, market structure is often not an exogenous factor in the activities of firms and is influenced by their strategy. To gain, maintain, or increase their power, firms take strategic actions by erecting strategic barriers to existing or potential competitors. Thus, strategic barriers are barriers caused by the strategic behavior of firms operating in the market: strategic pricing that limits the entry of potential competitors into the industry, strategic policies in the field of research and innovation expenditures, mergers and acquisitions, diversification and differentiation of products.

As a result, an imperfect competitor himself sets not only the quantity of products offered, but also its price, choosing a point on the demand curve based on the condition of profit maximization. Let us consider a number of strategic barriers to entry of firms into the market, the creation of which is resorted to by active firms with market power.

· Diversification

Diversification reflects the distribution of a firm's output among different target markets. Due to diversification, the minimum efficient volume of output in the industry increases, which makes it difficult for new firms to enter, or a given firm has cost advantages (if the total costs of producing several types of products A and B are jointly less than the costs of producing A and B each separately, i.e. e. C(A,0)+C(0,B)> C(A,B).

A diversified company usually has a large size; it reduces the risk of operating in one particular market, scares off potential competitors, thereby maintaining and increasing its market share, as well as market power.

· Product differentiation

Differentiation is the separation of a company's product in the eyes of consumers from other products of a given class. The set of differentiation factors includes: quality, appearance, trademark, time of sale, durability, conditions and service, both during sales and after sales, location of the seller relative to the consumer.

Product differentiation creates barriers due to the attractiveness of a particular product brand for a particular category of consumers, the so-called “brand loyalty” - as a result of which new firms have to overcome this consumer commitment. A brand is what consumers feel towards a product, their attachment to it, the personal qualities they attribute to the product, their trust and loyalty. A strong brand guarantees strong market power, so firms will always strive to maintain and increase this power.

In addition, to maintain demand, firms must spend additional resources on advertising, which raises the cost of production. There is also a reputation (good name) of the manufacturer that newcomers to the market have to contend with, which can be seen as a barrier to entry into the industry.

Differentiation gives rise to the emergence of such a market structure as monopolistic competition, in which, despite the fact that firms operate with normal profits in the long run, they set prices above the competitive level, which leads to allocative inefficiency.

· Mergers (acquisitions) of companies

Strengthening the market power of active firms expands the possibilities of an alternative mechanism for using resources, including through the acquisition of organized resources in the form of firms or their parts. Along with resources, goods and services, firms themselves also circulate on the industry market. The operations of the enterprise market are firm (corporate) mergers (acquisitions). Mergers increase the degree of market concentration, which gives the resulting merged firms new opportunities to determine the situation in the industry market.

Mergers differ in terms of the markets to which the company belongs. There are horizontal mergers - as long as the merging companies operate in the same product market. Vertical mergers or integration assumes that the firm operating in a given market is also the owner of either the early stages of the production process (type 1 integration, resource integration) or the later stages (type 2 integration, integration of the final product).

An integrated firm has additional competitive advantages because it can reduce the price of a product to a greater extent or make a greater profit at a given price due to lower costs of either purchasing factors of production or selling the final product. In addition, vertical integration creates barriers to entry not only due to the cost advantage of sellers already existing in the market, it increases the influence of sellers on the market due to either ownership of a factor of production or due to the possession of a wide distribution network. If, in order to enter the market, a potential competitor must itself pursue a policy of vertical integration, then it faces the problem of attracting financial resources.

The advantage of a vertically integrated firm can be explained not only within the framework of the technological approach - cost reduction due to the integration of production of successive stages of the product, but also within the framework of the contract approach - vertical integration serves as a method of reducing transaction costs.

When there is no horizontal or vertical connection between the two merging firms, the merger is called a conglomerate merger. In practice, mergers of diversified companies may include elements of several of the methods listed above.

Issues for discussion:

1. How do you understand the conclusion that when determining the product boundaries of the market, the product should be considered as a whole?

2. How do methods of selling goods affect the product boundaries of the market?

3. What is the difference between the concepts of “interchangeability in demand” and “interchangeability in supply”?

4. What does a researcher do if he finds out that “substitutability on demand” and “substitutability on supply” do not coincide?

5. By what indicators can we judge the interchangeability of goods from the consumer’s point of view?

6. What factors influence the determination of the geographical boundaries of the market?

7. What are the peculiarities of the geographical boundaries of markets in the Russian Federation?

8. Explain why the market for gas supplied via a gas pipeline is regional, despite the fact that the pipeline passes through several regions?

9. Why is measuring market share based on production volume inaccurate in today's economy? In what cases is it possible to determine market share based on production volumes?

10. Why is it necessary to calculate concentration indicators?

11. What data is needed to calculate concentration indicators?

12. What are the disadvantages of concentration indicators?

13. Can a firm have great economic power in a highly concentrated market with low barriers to entry?

14. What is the fundamental difference between non-strategic and strategic barriers? Can a firm transform non-strategic barriers into strategic ones?

Test:

1. If a company sells goods, the delivery of which is provided by a forwarding organization, then:

a) the product boundaries of the market include the service of a freight forwarder, and we are talking about one industry market;

b) the product boundaries of the product market do not include the service of a forwarder and we are talking about two industry markets;

c) product market boundaries include freight forwarder services, but we are talking about two industry markets.

2. If a set of spare parts is included in the mandatory product kit, then:

a) the product boundaries of the market include a set of spare parts, and we are talking about one industry market;

b) the product boundaries of the product market do not include a set of spare parts, and we are talking about two industry markets;

c) the product market boundaries include a set of spare parts, but we are talking about two industry markets.

3. If the product of activity (product) is sold in the form of a wholesale batch, then the product in this case is:

a) the product considered individually;

b) wholesale batch of product;

c) both a product individually and a wholesale batch can be considered as a product.

4. If after-sales service for office equipment is not included (in case of expiration of the warranty period or violation of operating conditions), then:

a) the product boundaries of the market include after-sales service of office equipment, and we are talking about one industry market;

b) the product boundaries of the product market do not include after-sales service for office equipment, and we are talking about two industry markets;

c) the product boundaries of the market include after-sales service for office equipment, but we are talking about two industry markets.

5. Suppose that part of the apartments in the house is rented, and the other part is put up for sale on the primary or secondary market. That's what we're talking about:

a) in this case, the type of income from property does not affect the number of markets;

b) about one product market;

c) about two food markets.