This presentation by the UK Competition and Markets Authority was made during the discussion “Market Concentration” held at the 129th meeting of the OECD Competition Committee on 7 June 2018. More papers and presentations on the topic can be found out at oe.cd/2gw.

1. OECD roundtable session on
market concentration
Andrea Coscelli
7 June 2018
1

2. Outline
● Are broad measures of market concentration
informative?
● Wider indicators of competition
● Possible policy responses
2

3. Are broad concentration measures
informative?
● Increase in concentration in a broad market implies
either
- increasing concentration within sub-markets, which might be
relevant markets; or
- firms increasing their scope of operations by entering into
multiple sub-markets
● Relationship between concentration and market
power fairly solid, but clearly there are exceptions
e.g. contestable markets, some bidding markets, etc.
● Potentially can be a useful indicator of where to look
more closely 3

4. Aggregate trends in UK market concentration
4
Source: CMA calculations based on UK national statistics
-
500
1,000
1,500
2,000
2,500
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
AverageHHI
Weighted average Upper quartile Lower quartile

5. Margins and profitability
● In principle, these are more direct measures of pricing power
- But harder to measure (e.g. CMA experience of profitability analysis in
market investigations)
● Rising mark-ups do not necessarily mean increasing market
power
- Would expect to see both concentration and mark-ups rise in a digital
world as fixed costs are high
● But trend of rising profits at least requires explanation
● Limited evidence for the UK – not covered by Weche and
Wambach (2018)
● Interesting that most of the US increase in mark-ups appears to
be driven by the top decile firms, but not in the EU.
5

6. Entry and exit rates in the UK
6
-
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 2014
Averageentry/exitrate(%)
Entry Exit
Source: CMA calculations based on UK national statistics (IDBR)

7. Relationship between concentration and
entry in UK (2010-2014 averages)
7
R² = 0.2021
0
5
10
15
20
25
30
35
40
45
50
0 1000 2000 3000 4000 5000 6000
Averagerateofentry(%)
Average sector HHI
Postal/courier
Mining and
quarrying
Source: CMA calculations based on UK national statistics

8. 8
Evidence from company reports
• AXA find inclusion of
word “competition”
in annual reports has
declined significantly.

9. Policy implications (1)
● High margins can exacerbate competition concerns
- Increased incentive to exclude rivals
- Merger models imply worse outcomes for consumers if margins
are high (e.g. GUPPI = margin x diversion)
● Possibility of under-enforcement in mergers?
- Kwoka (2015), many other commentators (particularly on US)
- Ormosi, Mariuzzo, and Havell (2015)
- KPMG (2017) evaluation of merger clearances
- Pietro Crocioni (2016) – evaluation of McGill’s/AWS
- Innovation-based competition, digital platforms buying start-ups
● ‘Leaning in’ vs. learning specific lessons from past
cases
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10. Policy implications (2)
● Should we be thinking about distributional effects of
market power?
- Ennis, Gonzaga and Pike (2017)
- Typically intervene on basis of aggregate consumer welfare
- Should we be concerned about welfare of particular customer
groups? (e.g. vulnerable consumers)
● Are we underestimating concentration as a result of
common ownership?
- E.g. evidence from US airlines
- Suggests ‘correcting’ concentration measures using MHHIs?
- Still lots of conceptual and empirical challenges to resolve
- If so, radical solutions? – Posner, Scott Morton, and Weyl (2016)
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