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The Anatomy of Concentration: New Evidence From a Unified Framework

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  • Kenneth R. Ahern
  • Lei Kong
  • Xinyan Yan

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.

Suggested Citation

  • Kenneth R. Ahern & Lei Kong & Xinyan Yan, 2024. "The Anatomy of Concentration: New Evidence From a Unified Framework," NBER Working Papers 32057, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32057
    Note: CF EFG IO
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    More about this item

    JEL classification:

    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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