Corporate concentration

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As corporate concentration or concentration in the economy is both a situation with a small number of participants on the enquirer or supply side of the market referred to and the process of reducing the number of market participants.

term

In general, concentration, as a statistical variable , denotes the concentration of features on a limited number of feature carriers from the totality of feature carriers. It is an expression of the unequal distribution of the characteristics over the totality of the characteristic carriers. To represent the economic concentration or company concentration, market shares or sales shares are usually used as a characteristic and companies as the characteristic carrier.

A distinction is made between absolute and relative concentration:

  • In the case of an uneven distribution of market shares in the relevant market, absolute concentration denotes the market share that an absolute number of the largest companies - for example the ten largest - have. If their market share increases, one speaks of increasing absolute concentration.
  • Relative concentration describes the extent of the uneven distribution of market shares among subsets of companies in the relevant market. For this purpose, the entirety of the features and feature carriers must be assigned to several size classes.

"If, for example, ten sales size classes GK1 to GK10 are formed and all companies are assigned to the relevant size classes, then there is relative concentration if the quotient applies: Companies in GKi in%: Sales in GKi in% <1."

- Gift :

If the quotient = 1 or> 1, there is no (relative) concentration. The quotient <1 decreases with increasing relative concentration. If companies in the lower size classes (e.g. through merger , takeover, majority shareholding) acquire larger market shares and thereby reduce the number of companies, this may U. no effect on the absolute concentration of the "greatest".

When concentrating in retail, it is important to note that retail companies and association groups are not active in a “relevant” product market because of their typical product range . Therefore, other parameters than product market sales must be used to measure concentration in retail, mostly sector sales; The number of employees, total capital or business space of the trading company as characteristics and companies or sales outlets (workplaces) as characteristics are also possible.

In order to more clearly distinguish macroeconomic concentration as the result of disproportionate growth in the company as a whole, which is based on various influences - above all structural and economic developments as well as the behavior of all market parties - from economically conscious growth decisions and company connections ( company merger, merger), Schenk has proposed that to identify those as corporate concentration and this as corporate concentration.

Forms of corporate concentration

  • Horizontal company concentration takes place between companies at the same production or economic level, for example between several coal mines or as a merger of automobile manufacturers or trading companies (advantage / reason: cost savings, unit cost degression, use of synergies )
  • Vertical corporate concentration takes place between different (upstream and downstream) production or economic levels, for example a coal mine merges with a steelworks that procures the coal. (Supplier principle, saving transaction costs ) (advantage / reason: cost savings in procurement, securing sales)

Depending on the degree of economic and legal independence, a distinction is made between a group and a trust . In a cartel, on the other hand, there is no interlinking of capital, so this is not a form of concentration, but a form of cooperation (which is fundamentally prohibited in many jurisdictions).

With increasing company concentration in a market, a distinction can also be made between concentration due to internal or external growth in the market share of companies (see also company growth ). If there is a shift in market shares e.g. If, for example, consumers make purchasing decisions in favor of a few, large companies and at the expense of small companies, one can speak of company concentration through internal growth. If there are mergers , one can speak of corporate concentration through external growth.

Framework conditions and control

Mergers between companies that lead to an increase in company concentration are subject to e.g. B. in Germany from a certain size of merger control in order to avoid the dominant position of a single player. The antitrust authorities regularly use the threshold values ​​of the Herfindahl-Hirschman index as a basis, among other things , in order to record the existing company concentration and changes in it. An increased concentration due to structural and economic factors, or in general due to internal growth of the company, is initially not subject to any restrictions. Grown monopoly or heavily oligopoly market structures are not prohibited in Europe and North America. However, companies with a dominant position may be subject to special regulations and abuse control (e.g. in German and European law).

In the Federal Republic of Germany, in addition to these legal options, an independent monitoring of corporate concentration is carried out. Since its formation in 1974, one of the legally stipulated tasks of the Monopolies Commission has been to assess the status and foreseeable development of corporate concentration in Germany. For this purpose, in accordance with the statutory mandate according to Section 44 GWB, a main report is prepared every 2 years in which, among other things, detailed reports on the issues of corporate concentration are provided.

Advantages and disadvantages of corporate concentration

In economic theory it is widely assumed that an increased company concentration can favor cartels , which as a rule have a negative effect on competition and are often to the detriment of consumers (and are therefore prohibited in principle in many jurisdictions). Increasing corporate concentration can also possibly lead to an increase in the market power of the companies concerned, which can also be detrimental to consumers or existing and potential competitors. Increasing concentration can also be an expression of a shift in production towards those companies in a market that can produce most efficiently and cost-effectively, which in turn can benefit buyers. Overall, with increasing company concentration, both internal growth in market shares and mergers can lead to a number of positive and negative economic or business effects. For the advantages and disadvantages especially of mergers, see merger .

Examples of advantages:

  • In more concentrated markets, financial and human resources for research and development can be bundled.
  • Larger companies may be able to use economies of scale and thus produce more cost-effectively.
  • Companies in more concentrated markets may be more resilient to economic fluctuations .
  • Companies in more concentrated markets may have better access to credit and other financing options.

Examples of disadvantages:

  • Company concentration can lead to market power, as a result of which customers and suppliers can become dependent. This can be used to exploit market power, e.g. B. through high prices (see also abuse control ).
  • Increasing corporate concentration can possibly have a self-reinforcing effect. Dominant firms tend to have the power to force competitors out of the market ( dumping prices ) or to raise barriers to market entry for potential competitors.

Measurement of company concentration and its problems

Statistics provide a number of concentration and disparity measures for measuring company concentration:

For graphical representation of the absolute concentration is the concentration curve , graphical presentation of the relative concentration of the Lorenz curve .

In particular, the Herfindahl-Hirschman Index (HHI) is used in antitrust practice. In the US legal area, for example, a market is considered unfocused under antitrust law if the index is below 1,500. In European practice, safety is assumed if the HHI is between 1,000 and 2,000 and the change due to a merger is less than 250 or the value is over 2,000 but the change is less than 150.

The main problem of concentration measurement lies in the limited availability or suitability of empirical data. The homogeneity requirement for feature carriers and features is not always easy, and sometimes not at all. Concentration measurements are also subject to material, temporal and spatial restrictions. If the annual market shares of incandescent lamp producers in a country (and possibly increasing concentration rates) can be recorded with some accuracy, concentration measurements in retail pose major delimitation and survey problems. For example, the measurement of company concentration in specialist stores or discounters requires that these are precisely delimited objectively (furniture stores? Building materials stores? Food discounters? Photo discounters?) And spatially (“relevant market”!) And that their sales are recorded statistically. Since trading companies regularly have a mixed range of products and do not compete on homogeneous sales markets, but on many product markets at the same time, it is practically impossible to determine "market shares" based on sales. And since trading companies are assigned to only one branch, but not one type of company , according to the statistical focus principle, the isolated recording of the company concentration of one type of company is also practically impossible. After all, the trade statistics only record sales in institutional retail, such as furniture, building materials, food or photo retail, but not the corresponding sales in functional retail (and online retail). With numerical and graphical concentration representations, problems also arise from the fact that the other companies are not recognizable in the absolute concentration, for example the ten "largest", and in the relative concentration, for example represented by a Lorenz curve, the absolute number of all companies considered is not is recognizable.

literature

  • Georg Eichhorst et al .: Bibliography : Concentration, Concentration Policy, Multinational Enterprises 1967–1975 . Duncker & Humblot, 1976, ISBN 978-3-428-03711-7 .
  • Josef Gruntzel : The economic concentration . Springer, Vienna 1928.
  • Hans-Otto Schenk, Hiltrud Tenbrink, Horst Zündorf: Concentration in retail. Causes, measurement, status, development and effects of concentration in trade and consequences for concentration policy (= Research Center for Trade Berlin. Series of publications. 3rd episode, vol. 9). Duncker and Humblot, Berlin 1984, ISBN 3-428-05618-3 .
  • Hans-Otto Schenk: Market economics of trade. Gabler, Wiesbaden 1991, ISBN 3-409-13379-8 . Reprint 2012, ISBN 978-3-322-84581-8 .
  • Bernd Woeckener: Strategic Competition: An Introduction to Industrial Economics . 2. completely revised Edition 2011 (1st edition 2007), Springer, ISBN 978-3-642-19976-9 .

See also

Individual evidence

  1. ↑ Schenk: Market Economics of Commerce. 1991, p. 409.
  2. ↑ Schenk, Tenbrink, Zündorf: The concentration in trade. 1984, p. 172.
  3. ↑ DOJ / FTC, Horizontal Merger Guidelines , August 19, 2010.
  4. ↑ Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of business combinations (2004 / C 31/03).