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MESURING
CONCENTRATION
source: www.cem.ulaval.ca/6thwmec/
albarran_mierzejewska.pdf.
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Different tools are used to measure concentration of market share within a particular industry…*- one simple approach, concentration ratios, compares the ratio of total revenues of the major players with the revenues of the entire industry, using the top 4 firms (CR4) or the top 8 firms (CR8). If the 4-firm ratio is equal to or greater than 50%, or if the 8-firm ratio is equal to or greater than 75%, then the market is said to be highly concentrated;
- concentration ratios are helpful in conducting trend analysis, to determine changes over time. However, the ratios themselves are not sensitive to the individual power held by individual firms. For example, two different industries may have equal ratios, but the shares of the firms within each of the industries may differ greatly;
- articulate, concentration ratios can be applied to measure across- communication industry concentration. Researchers must identify the appropriate market share (e.g. revenue/turnover or circulation) of the top-four and eight firms across the various types of communication industries compared to the total communication industry revenues;
- the Herfindahl-Hirschman Index (HHI), used by the Antitrust Division of the Department of Justice in the United States, is another, more sophisticated tool to measure concentration in a market. The HHI is calculated by summing the squared market shares of all firms in a given market. The index is more accurate than concentration ratios, but to calculate the HHI one must have data on each firm contributing to total revenues in an industry. This can be problematic when trying to measure concentration in markets with multiple participants.
- one other tool to measure concentration is the Lorenz Curve. It assumes that in a market individual firm shares should be divided equally. Using data from a market, the researcher can plot the individual shares on a graph, illustrating the level of inequality (or curve) that exists in the market being examined. The utility of this approach lies in its graphical presentation, but the curve can be hard to interpret. Like the HHI, the larger the number of firms the more challenging to use this method as a means to measure concentration.
* Albarran, Alan and Mierzejewska, Bozena, “Media Concentration in the US and European Union: A Comparative Analysis”, Centre d’études sur les médias and Journal of Media Economics, May 12-15, 2004
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