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Stock Markets and Competition: What Does A Concentrated Stock Market Tell Us About Competition In The Economy?

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  • Adam Triggs

Abstract

The paper presents analysis of market concentration in Australia’s stock market and explores what this might tell us about the state of competition in the real economy. It finds that, on most measures, Australia’s stock market is highly concentrated but is becoming less concentrated over time. Many studies, including leading books on competition policy, have used stock market concentration as a proxy for market concentration in the economy, usually due to data constraints. The paper warns against this. Using the stock market for competition analysis incorrectly defines markets and competition, excludes most competitors, ignores important market dynamics and leads to erroneous results. Declining stock market concentration should not be taken as a sign that competition in the economy is improving.

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  • Adam Triggs, 2021. "Stock Markets and Competition: What Does A Concentrated Stock Market Tell Us About Competition In The Economy?," Economic Papers, The Economic Society of Australia, vol. 40(3), pages 194-208, September.
    • Handle: RePEc:bla:econpa:v:40:y:2021:i:3:p:194-208
    DOI: 10.1111/1759-3441.12307
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    References listed on IDEAS

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    1. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    2. Bruce A. Blonigen & Justin R. Pierce, 2016. "Evidence for the Effects of Mergers on Market Power and Efficiency," Finance and Economics Discussion Series 2016-082, Board of Governors of the Federal Reserve System (U.S.).
    3. Sasan Bakhtiari, 2019. "Entrepreneurship Dynamics in Australia: Lessons from Micro‐data," The Economic Record, The Economic Society of Australia, vol. 95(308), pages 114-140, March.
    4. Maurizio Naldi & Marta Flamini, 2017. "Censoring and Distortion in the Hirschman–Herfindahl Index Computation," Economic Papers, The Economic Society of Australia, vol. 36(4), pages 401-415, December.
    5. Andrew Leigh & Adam Triggs, 2016. "Markets, Monopolies and Moguls: The Relationship between Inequality and Competition," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 49(4), pages 389-412, December.
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    Cited by:

    1. Amit Pandey & Anil Kumar Sharma, 2023. "Effect of Index Concentration on Index Volatility and Performance," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(3), pages 559-585, September.

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