The Anatomy of Concentration: New Evidence From a Unified Framework

Kenneth Ahern, Lei Kong and Xinyan Yan

No 32057, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Concentration is a single summary statistic driven by two opposing forces: the number of firms in a market and the evenness of their market shares. This paper introduces a generalized measure of concentration that allows researchers to vary the relative importance of each force. Using the generalized measure, we show that the widely-cited evidence of increasing industrial employment concentration is driven by the Herfindahl Index's over-weighting of evenness and under-weighting of firm counts. We propose an alternative, equally-weighted measure that has an equivalent economic meaning as the Herfindahl Index, but possesses superior statistical attributes in typical firm size distributions. Using this balanced measure, we find that employment concentration decreased from 1990 to 2020. Finally, decomposing aggregate diversity into meaningful geographic and industry subdivisions reveals that concentration within regional markets has fallen, while concentration between markets has risen.

JEL-codes: C46 D40 L11 (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-bec, nep-com, nep-geo, nep-ind, nep-lma, nep-reg and nep-ure
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