Dynamics of Market Power and Concentration Profiles

This paper examines some of the economic and econometric issues that arise in attempting to measure the degree of concentration in an industry and its dynamic evolution. A general axiomatic basis is developed. We offer new measures of concentration over aggregated periods of time and provide a sound statistical basis for inferences. Concentration is one aspect of the problem of measuring “market power” within an industry. Modern economic analysis of antitrust issues does not focus only on the level of concentration, but still must examine the issue carefully. We contrast concentration at a point in time with a dynamic profile of change in the distribution of shares in a given market. Our methods are demonstrated with an application to the US steel industry.