market concentration


Also found in: Wikipedia.

market concentration

the extent to which the production of a particular good or service is controlled by the leading suppliers (seller concentration), and the extent to which the purchase of a product is controlled by the leading buyers (buyer concentration). The degree of seller concentration in a MARKET is often measured by a concentration ratio which shows the proportion of market sales accounted for by the largest five, or ten, suppliers.

The significance of market concentration for BUSINESS STRATEGY and MARKETING lies in its effect on the nature and intensity of competition. Structurally, as the level of seller concentration in a market progressively increases, ‘competition between the many’ becomes ‘competition between the few’ until, at the extreme, the market is totally monopolized by a single supplier (see MARKET STRUCTURE). In terms of MARKET CONDUCT, as supply becomes concentrated in fewer and fewer hands (OLIGOPOLY), suppliers may seek to avoid mutually, ruinous price competition and channel their main marketing efforts into sales promotion and product innovation, activities which offer a more profitable and effective way of establishing COMPETITIVE ADVANTAGE over rivals.

Buyer concentration can also affect the competitive situation. In many markets (particularly end-consumer markets) buyers are too small to influence supply conditions, but in others (particularly in intermediary goods markets and in retailing), buying power is concentrated and purchasers are able to obtain bulk-buying discounts from suppliers. See ECONOMIES OF SCALE, HORIZONTAL INTEGRATION, COMPETITION POLICY, MONOPOLY.

market concentration

the extent to which the production of a particular good or service is controlled by the leading suppliers (SELLER CONCENTRATION) and the extent to which the purchase of a product is controlled by the leading buyers (BUYER CONCENTRATION). The degree of seller (or buyer) concentration in a MARKET is often measured by a CONCENTRATION RATIO, which shows the proportion of market sales (or purchases) accounted for by the largest five, or 10, suppliers (or buyers). See CONCENTRATION MEASURES for further discussion.

An increase in the level of market concentration can come about through the differential rates of ORGANIC GROWTH of firms, with the more successful firms increasing their market shares at the expense of weaker rivals. Alternatively, greater market concentration may occur as a result of the EXTERNAL GROWTH of firms through mergers between, and takeovers of, competing suppliers. See RESOURCE-BASED THEORY OF THE FIRM.

The significance of market concentration for market analysis lies in its effect on the nature and intensity of competition. Structurally, as the level of seller concentration in a market progressively increases, ‘competition between the many’ becomes ‘competition between the few’ until, at the extreme, the market is totally monopolized by a single supplier (see MARKET STRUCTURE). In terms of MARKET CONDUCT, as supply becomes concentrated in fewer and fewer hands (OLIGOPOLY), suppliers may seek to avoid mutually ruinous price competition and channel their main marketing efforts into sales promotion and product innovation, activities that offer a more profitable and effective way of establishing COMPETITIVE ADVANTAGE over rivals.

Buyer concentration can also affect the competitive situation. In many markets (particularly end-consumer markets) buyers are too small to influence supply conditions, but in others (particularly in intermediary goods markets and in retailing), buying power is concentrated and purchasers are able to obtain BULK-BUYING discounts from suppliers. See ECONOMIES OF SCALE, HORIZONTAL INTEGRATION, COMPETITION POLICY, MONOPOLY, FIRM GROWTH.

References in periodicals archive ?
During the past two years, the growth of consumption in Vietnam, the increasing market concentration of pig farming have opened up opportunities for industry consolidation.
The relationship between hospital market concentration and hospital quality has achieved substantial attention in the literature.
The driving force behind the meeting is an urgency to address the remarkable increase in market concentration in many sectors of the global economy in the hands of a few multinational companies.
Market concentration in the defense industry has increased in the last three decades, leading to less competitive bidding and to more contracts that require the federal government to pay the contractor for all costs incurred, plus a mark-up.
Steinbaum, Roosevelt Institute, "Labor Market Concentration" (NBER Working Paper No.
Some of the basic requirements of a petrol station are having a canopy over the pumps, a tank farm and an interceptor area.In addition, the platform will be used to establish the market concentration of oil marketers and help monitor competition in the sector as well as cut response time for emergencies.
Therefore, the study may be overestimating labor market concentration.
In listing these high-risk manufacturing sectors, Medalla considered, among other factors, market concentration and high price cost margins.
Market concentration may prevent optimal competition.
"This new partnership with SPAR is the perfect opportunity to achieve this vision and we are very confident in this new venture." Tobias Wasmuht, Managing Director of SPAR International said "The introduction of SPAR to Cyprus provides to independent retailers of Cyprus the possibility to respond to growing market concentration in Cyprus of national and international chains, whilst meeting the needs of both local and international tourist shoppers.
A large range of empirical research in industrial organization economics deals with the relationship between industry performance and market concentration. Assessing the impact of market concentration and other structural variables such as advertising intensity, capital requirements, economies of scale in production, firm size, industry growth or measures of risk has been the subject of many contributions in the literature (e.g.
Although such a restructuring environment has substantially changed the market concentration of the U.S.