mca area scum Nata ener Dominance (economics) From Wikipedia, the foe enyelopedia Market dominance is a measure ofthe strength ofa brand, product, serviee, or fm, relative to competitive offerings. There is often a geographic ‘element to the competitive landscape. In defining market dominance, you must see to what extent a produc, brand, or firm controls a product category ina given geographic area"! Calculating ‘There are several ways of calculating market dominance. The mast direct is market share. Ths isthe percentage of the total market served by a frm oF brand. A declining scale of market shares is common in mast industries thats, if the industry leader has say 50% share, the next largest might have 25% share, the next 12% share, the next 6% share, and all remaining firms combined might have 7% share Market share isnot perfect proxy of market dominance, The influences of customers, suppliers, competitors in related industries, and government regulations must be taken into account. Although there are no bard and fast rules governing the relationship between market share and market ‘dominance, the following are general criteria +A company, brand, product, or service that has a combined market share exceeding 60% most probably has market power and market dominance +A market share of over 35% but less than 60%, held by one brand, product or service, isan indicator of market strength but not necessarily ‘dominance. +A. market share of less than 35%, held by one brand, product or service, is not an indicator of strength or dominance and will not raise an ‘competitive concerns by government regulators. Market shares within an industry might not exhibit a declining seal. There could be only two firms in a duopolistic market, each with S0% share; or there could be three firms in the industry each with 33% share; or 100 firms each with 1% share. The concentration rato ofan industry is used as an indicator ofthe relative size of leading firms in elation to the industry as a whole. One commonly used concentration rtio isthe four-frm concentration ratio, which consists ofthe combined markel share of the four largest firms, asa percentage, in the total industry, The higher the concentration ratio, the preater the matket power ofthe leading fms. Alternatively there isthe Herfindabl index. Iisa measure ofthe size of firms in elation to the industry and an indicator of the amount of competition ‘among them. Its defined as the sum of the squares ofthe market shares of each individual firm. As such, it ean range fiom 0 to 10,000, moving from a very large amount of very small firms toa single monopolistic producer. Decreases in the Herfindahl index generally indicate « loss of pricing power and an increase in competition, whereas inereases imply the opposite Kwoka’s dominance index (Ds defined asthe sum ofthe squared difrences between cach fim share andthe next largest share in «market. nt D=Y (si - 5:41)” where SB BSD Sig DoD Sy forall 1, gn LE) ‘As part ofits merger review process, Mexican Competition Commission uses Garcia Alba's dominance index (ID), described as the Herfindahl index of 2 f 3t/ HHL Tesfindah index (THM), Formally, ID is he sum of squared Fim consbutions tothe market HIM; [D = > HP where, European Commission's Tenth Report on Competition implies that a significant disparity between the largest and the second-largest firm shares ean indicate that the largest firm has a dominant position in the market. Specifically, under a section entitled "Serutiny of mergers for compatibility with Article 86 BEC," the Report states: ‘A dominant position can generally be suid to exist once a marketshare to the order of 40% to 45% is reached. footnote: A dominant position ‘cannot even be ruled out in zespect of market shares between 20% and 40%, Ninth Report on Competition Policy, point 22 ] Although this share ‘does not in itself automaticaly give control ofthe market, if there are large gaps between the position ofthe firm concerned and those of ils closest competitors and also olher Factors likely to place ital an advantage as regards competition, a dominant position may well exit. (European ‘Commission's Tenth Report on Competition, page 103, paragraph 150.) » 2 ‘Asymmetry Index (AI) is defined asthe statistical variance of market shares: AT =~ (s - +) / 18) n See also + Market power References 1. tp cwmes fas. harvard edu~athey/Invest_Mkt_Dominance pf 2 Kevoka, JE. "Large firm dominance and pree-cost margins in manufacturing industries." Southern Heon 3 (1977) va. 4, pp. 183-9 3. Brown, Donald M, and Frederick R. Watren-Boulon, Testing the Sicuetae- Competition Relationship on Cross-Sectional Fim Data, EAG 88-6, May 11, 1988 44, Warren-Boulon, Frederick R. (1980). "Implications of U.S, Experience with Horizontal Mergers and Takoovers for Canadian Competition Poliy*. in Mathew, G. Frankia etal (eds) The Lav and Economics of Conmpettion Policy Vancouver, B.C. The Fraser Intute ISBN 0-88975-121-8 rope dewteatacrwabeniars eras) esmca area scum Nata ener Retrieved fiom ps:en. wikipedia org/windex php ?title-Dominance_(economies)oldid=62495504 Categories: Monopoly (economics) | Imperfect competition | Economics terminology This page was last modified on 10 September 2014, at 15:13. ' Text is available under the Creative Commons Attribution-ShareAlike License; additional terms may apply. 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