Quarterly Bulletin - September 2009 - Gauteng Provincial Treasury


Quarterly Bulletin - September 2009 - Gauteng Provincial Treasury

Quarterly Bulletin2009/10: Quarter 2Implications of IndustrialConcentration onEmployment, Investmentand Productivity in theManufacturing SectorEconomic Analysis DirectorateGauteng Treasury2009Economic Analysis Directorate 1

Quarterly Bulletin1. IntroductionThe concept of industrial concentrationfocuses on the extent to which a firm orgroup of firms dominate a particularsector or sectors. The structure of thefirm determines the concentration levelof firms within a particular sector, whichcan either be highly concentrated orlower concentrated. The structure of theeconomy is particularly important infostering a competitive environment andis primarily affected by the relativeendowments of individuals and groups asit enables them to participate in marketexchange. For instance, powerful groupssuch as firms shape markets byinfluencing the composition and terms ofexchange. Both the size and position offirms within the economy are importantfactors that influence the relationshipbetween sectoral structure and marketdriven by the belief that the structure of aparticular sector is likely to have an effect onemployment, investment and productivity.This paper will analyse the implications ofhigh levels of industrial concentration withinthe manufacturing sector. Section two of thepaper analyses the role of industrialconcentration and competition policy. Sectionthree discusses the manufacturing sectorand the rationale for selecting it as a casestudy for this paper. Then Section fourreviews the literature and the findings onrelationships between industrialconcentration and a number of economicvariables, such as employment, investmentand productivity. Lastly, section fiveanalyses the effect of firms abusing theirmarket power and also provides differentcases of collusion between South Africanfirms and the response of the CompetitionCommission in addressing those cases.outcomes.2. Industrial ConcentrationFirms that are highly concentrated tendto have more market power, and this will Fedderke & Simbanegavi (2008:2) defineresult in less competition and inefficiency industrial concentration as ‘the extent toin the economy. The resulting which few number of firms accounts for ainefficiencies necessitate government large proportion of economic activity such asintervention through the use of total sales, assets and employment in ancompetition policy. The lack of the sector. That is, the fewer the number ofcompetition and presence of these firms, the higher the level of market powerinefficiencies also has an impact on the and the higher the degree of concentration.economy at large. Fedderke & Naumann A higher degree of industrial concentration is(2005:14) highlight that the interest of indicative of the existence of monopolies.economists in industrial concentration isEconomic Analysis Directorate 2

Quarterly BulletinThese high levels of concentration lead to artificially high prices to generate maximumprofits. Dominant firms are able to make profits by constraining supply and raising pricesabove marginal (and average) cost. In cases of oligopoly, firms can collude rather thancompete in order to collectively generate monopoly profits.Concentration, which is a measure of the structure of the economy, is derived from theStructure, Conduct and Performance (SCP) paradigm, which was introduced as a way ofexamining the relationship between firms and their behaviour. Arguing that structurecharacterises individual markets within the economy, Ferguson & Ferguson (1998:14-15)focus on the individual SCP elements in detail, looking at the number, size and distribution offirms, all of which can be classified as perfect competition, oligopoly, monopoly andmonopolistic competition. The SCP paradigm analyses the behaviour of firms in a market bylooking at the degree of competitiveness, whether firms set their prices independently or incollusion with other firms. Lastly, performance considers how well firms satisfy consumerrequirements, in other words are firms achieving allocative and productive efficiency.While both the structure and performance of firms can be measured, it is, however, difficultto measure the conduct of a firm. Structure is measured by the degree of concentration.Some of the measures of concentration mentioned by Bikker & Haaf (2001:4) are theHerfindahl-Hirschman Index (HHI), Rosenbluth Index (RI), Gini Coefficient (GC),Concentration Ratio (CR), Entrophy (E) and firm turnover. While each of these measures hasadvantages and disadvantages, there is one common limitation that is highlighted for allthese measures; it is the extensive data requirement. Due to data limitations, this paperuses the turnover of firms as a measure of concentration. Performance is measured bymarket power through the Learner Index, which is the relative mark-up of price abovemarginal cost.Ferguson & Ferguson (1998:16) argue that ‘performance is determined by the conduct of thefirm, which in turn is determined by the structural characteristics of the firms’. A higherdegree of industrial concentration affects social and economic welfare, leading to socialinefficiency. Social inefficiency is the loss to consumers that results from firms operatinginefficiently. Research has been conducted in South Africa to investigate the existence ofthese relationships; however, the debates have been inconclusive due to the contradictoryresults that different research has reported.Economic Analysis Directorate 3

Quarterly BulletinThe advent of competition policy, which is a component of industrial policy, is aimed atreducing inefficiencies, monitoring and curbing the pervasive abuse of market power bymonopolies. Competition policy specifically focuses on individual firms and sectors withinthe economy. The legislative framework for competition policy within South Africa isprovided by the Competition Act, No. 89 of 1998. According to Roberts (2004:1),competition policy plays an important role in increasing competitive market pressures,enabling enhanced levels of efficiency and international competitiveness for domestic firms.Competition policy in South Africa aims to: address socio-economic backlogs, enhancecompetition between firms, prohibit anti-competitive conduct of firms and prevent theabuse of dominant market position and mergers and acquisitions that do not serve thepublic interest. Competition policy seeks to remedy situations where competition is ‘unfair’,and such situations arise when large firms have a large degree of market power. Theremight also be agreements between firms that seek to limit competition in order to enhanceprivate returns which do not reflect productive capabilities.3. The Manufacturing Sector in GautengThe focus of this paper is on the manufacturing sector because of its significant contributionto employment in Gauteng. Inter-provincial comparisons from Quantec Research (2009)reveal that the share of Gauteng’s manufacturing sector contributes the most to the overallSouth African manufacturing sector, with 41% in 2008, followed by Kwazulu-Natal (21%)and Western Cape (15%). The Gauteng Economic Development Agency (GEDA) (2009:28)also emphasises that in 2008, Gauteng contributed more than one third of totalmanufacturing employment in South Africa. Analysis of the manufacturing sector in SouthAfrica is somewhat indicative of activity within the sector in Gauteng.The Advanced Manufacturing Technology Strategy (AMTS) (2002:4) managed by theCouncil for Scientific and Industrial Research (CSIR), and funded by the Department ofScience and Technology, states that one reason to focus on industrial policy within themanufacturing sector is due to the highly tradeable nature of manufactured goods whichcould facilitate international trade for both economic and social development._________________________________________________________________________1 The manufacturing sector includes: food & beverages, textiles & clothing, wood & paper, chemicals, metals, electrical machinery, electronicappliances, transport equipment, furniture & other manufacturing (Stats SA)Economic Analysis Directorate 4

Quarterly Bulletin4. The Economic Impact of Industrial ConcentrationThe structure of the economy has an impact on economic development throughemployment, investment and productivity. Fedderke & Szalontai (2005:21) found thatincreased industrial concentration resulted in lower labour productivity, while in respect ofthe relationship between industrial concentration and investment, the results wereambiguous. Furthermore, Fedderke & Naumann (2005:25) found that higher industrialconcentration in the manufacturing sector is positively correlated with the level of output,investment and export orientation, but negatively correlated with employment. Thenegative relationship between industrial concentration and employment is significant from apolicy perspective and this paper implies that in order to address the challenge ofunemployment in South Africa, it is also important to address the structure of the sectors.This paper makes use of the turnover ratio as a measure of changes in industrialconcentration (other measures of concentration include Rosenbluth and Gini indices).Turnover is defined as the total value of goods and services sold by a firm during aparticular period of time. The top 100 firms (in terms of turnover) listed on theJohannesburg Stock Exchange (JSE) were selected in order to determine the firmconcentration in this sector.Economic Analysis Directorate 5

Quarterly BulletinTable 1: Top Manufacturing Firms by Market Turnover, South Africa, 2008 2Company Turnover Contribution Sectors HeadquartersSAB Miller 135,912 24.9% Food & beverages GautengSasol 98,127 18.0% Chemicals GautengBarloworld 50,259 9.2% Transport Equipment GautengSteinhoff International 36,650 6.7%Furniture & othermanufacturingGautengSappi 35,043 6.4% Wood & paper GautengArcelorMittal SA 25,363 4.6% Metals GautengAllied Electronics Corp 17,126 3.1% Electronic appliances GautengNampak 3 17,014 3.1% General sectors GautengTiger Brands 16,210 3.0% Food & beverages GautengOando 11,605 2.1% Chemicals GautengAECI 10,212 1.9% Chemicals GautengReunert 9,445 1.7% Electronic appliances GautengRemgro 4 7,877 1.4% General sectors Western CapeTongaat Hullet 7,848 1.4% Food & beverages Kwazulu-NatalHiveld Steel & Vanadium 6,901 1.3% Metals MpumalangaAfgri 6,530 1.2% Food & beverages GautengAVI 6,332 1.2% Food & beverages GautengAstral food 6,329 1.2% Food & beverages Kwazulu-NatalIllovo Sugar 6,264 1.1% Food & beverages Kwazulu-NatalDistell group 6,231 1.1% Food & beverages Western CapeOmnia Holdings 5,537 1.0% Chemicals GautengRainbow chicken 4,730 0.9% Food & beverages Kwazulu-NatalAspen Pharmacare 4,026 0.7% Chemicals Kwazulu-NatalCaxton CTP Pub &Printing 4,006 0.7% Wood & papers GautengAfrican Oxygen 3,914 0.7% Chemicals GautengBell Equipment 3,533 0.6% Transport Equipment Kwazulu-NatalKAP International 5 3,495 0.6% General sectors Western CapeSource: Finweek Database, 2009Table 1 indicates some of the top 100 manufacturing firms in South Africa based on theirturnover. Of the total top 100 firms, 27 were in the manufacturing sector in Gautengcontributing 22% of total turnover. This highlights its relative importance to the Gautengeconomy and South Africa in general. This also indicates that a significant number of firmsare oriented towards some form of manufacturing. The high share of manufacturing firms inGauteng is also attributed to the fact that most of the firms’ headquarters are based inGauteng and supports the notion that Gauteng is the manufacturing hub of South Africa._____________________________________________________________2 Manufacturing firms were taken from the top 100 firms ranked by turnover at the end of 20083 Nampak is a general firm since it manufacture diverse of packaging products, in a wide range of paper, plastic,metals and glass.4Remgro is general firm since the group focuses on various sectors mainly of: investments in banking andfinancial services, printing and packaging, motor components, glass products, medical services, mining, petroleumproducts, food, wine and spirits and various other trade mark products.5 KAP International is classified as general sectors as it focuses on various sectors such as fibres, footwear,automotive and foodEconomic Analysis Directorate 6

Quarterly BulletinFigure 1: Manufacturing Sectors Annual Turnover Trends, South Africa, 2004-2008Source: Finweek Database, 2009Figure 1 analyses turnover trends within the manufacturing sector from 2004 to 2008. Theturnover contribution is calculated as the total turnover divided by the number of firmswithin the sector. Therefore, the higher the turnover contribution, the larger the amount ofturnover per firm which indicates a higher degree of industrial concentration and vice versa.Food & beverages, chemicals and transport equipment can be classified as highlyconcentrated sectors, while wood & paper, general sectors, metals, electronic appliancesand furniture & other manufacturing can be classified as lower concentrated sectors.Throughout the period, the food & beverages sector has dominated, followed by thechemicals and transport equipment sectors. The importance of food & beverages can beattributed to the fact that most of Fast Moving Consumer Goods (FMCG) sectors are basedin Gauteng. The remaining sectors were the lowest in terms of market turnover.Economic Analysis Directorate 7

Quarterly Bulletin4.1 Industrial Concentration and EmploymentThe manufacturing sector in Gauteng is the third largest contributor to employment, aftercommunity, social & personal services and wholesale & retail trade. Figure 2 detailsemployment share by sector in order to analyse the sectoral location of employment inGauteng and South Africa for 2008. In Gauteng, 17% of formal employment was within themanufacturing sector making it the third largest contributor to provincial employment. InSouth Africa, the manufacturing sector employed 14%, also making it the third largestcontributor to national employment. Fedderke & Simbanegavi (2008:15) found that higherindustrial concentration is negatively associated with both employment and employmentgrowth. It is because highly concentrated firms mostly focuses on maximising their ownprofit, and don’t investment much on increasing their employment.Figure 2: Employment Shares by Sector, Gauteng & South Africa, 2008Source: Quantec Research, 2009Economic Analysis Directorate 8

Quarterly BulletinFigure 3: Gauteng Sectoral Employment Contribution to South Africa, 2008Source: Quantec Research, 2009Figure 3 illustrates the Gauteng sectoral employment contribution to South Africa for 2008.It is important to observe that most of the sectors in Gauteng contributed more than 20%to sectoral employment in South Africa as a whole, with only the mining & quarrying andagriculture, forestry & fishing sectors contributing less than 10%. The manufacturing andtransport & communications sectors made the second highest contributions to the SouthAfrican manufacturing sector at about 35% each, after finance & business services at 43%.This indicates the importance of the manufacturing sector to the national economy.Economic Analysis Directorate 9

Quarterly BulletinFigure 4: Employment Shares within the Overall Manufacturing Sector and Top100 Manufacturing Firms, Gauteng, 2008Overall Manufacturing FirmsTop 100 Manufacturing FirmsSource: Quantec Research, 2009 Source: Top 100 firms Annual Reports in Gauteng, 2009Figure 4 compares the employment shares in the manufacturing sector and that of the top100 manufacturing firms in Gauteng. In the overall manufacturing firms, the largestemployers were metals (23%), followed by food & beverages (16%), wood & paper (12%)and textiles & clothing (11%). The employment picture changes dramaticaly in the top 100manufacturing firms in terms of the employment contribution in comparison to the overallmanufacturing firms. The chemicals and food & beverage sectors constituted the largestemployment shares of 28% and 21% respectively. The furniture & other manufacturingsectors employment share is 18% followed by general sectors with 12%.A surprising finding is between chemicals sectors. Chemicals employ more in the top 100manufacturing firms, but contribute a lower share in the manufacturing sector as a whole.The fact that chemicals sector is considered as one of the highly concentrated and alsoemploy a large number of individuals does not suppport the literature’s findings. A review ofthe literature has indicated that high industrial concentration is associated with relativelylower levels of employment. Other sectors that are highly concentrated and have higheremployment are food & beverages, chemicals and wood & paper.In conclusion, a high degree of industrial concentration within the manufacturing sectordoes not necessarily imply lower employment shares as indicated by the literature review.Economic Analysis Directorate 10

Quarterly BulletinThis relationship is determined by the particular conditions such as labour intensity and thetype of labour employed within the sub-sectors of the manufacturing sector.4.2 Investment and the Impact of Industrial ConcentrationInvestment is seen as a foundation of long term economic growth. Investment isundertaken either through purchasing capital goods or through research and development(R&D). R&D initially results in innovation, after which imitators will enter the market anderode the monopoly profits being made by the firms that invested in the R&D. This takes along time, during which abnormal profits are made by monopolies.Investment in South Africa has recorded positive growth rates since 2002. The substantialgrowth in investment is due to infrastructural investment which led to a high of 16.3%growth in 2008 (Econometrix, 2009). However, Fedderke & Naumann (2005:19) indicatedinvestment in manufacturing is restricted to machinery and equipment as these provide thebulk of productive capacity in this sector.Fedderke & Szalontai (2004) have found mixed results when testing the relationshipbetween industrial concentration and investment, whereby some studies exhibited apositive correlation and other exhibited an ambiguous relationship. However, the study byFedderke & Naumann (2005) concluded that a higher level of concentration is harmful to forinvestments in the South African manufacturing sector.Figure 6: Investment in Manufacturing Sectors, Gauteng, 2008Source: Quantec Research, 2009Economic Analysis Directorate 11

Quarterly BulletinThe impact of higher levels of industrial concentration in Gauteng on investment seemsopposite to the conclusion by Fedderke & Naumann (2004) that there is a negativerelationship between the two. Figure 6 indicates the shares of investment across allmanufacturing sectors in Gauteng in 2008. The largest share of investment was in theproduction of chemicals (28%), followed by wood & paper (18%), food & beverages (15%)and metals (13%) respectively. The contributions of these sectors in terms of industrialconcentration were food & beverages (36%), chemicals (25%), transport & equipment(10%) and wood & paper (7%). Investment in the manufacturing sector in Gauteng isdominated by sectors that are highly concentrated within the top 100 firms in South Africa,having accounted for 61% of total manufacturing investment in 2008. In conclusion, onecan say industrial concentration in the manufacturing sector in Gauteng did not affectinvestment negatively. However, one needs to be cautious on the conclusions as they arebased on theoretical analysis and not empirical conclusions.Another example of a positive relationship between high concentration and investment isthat in the chemical sector. Sasol was the largest contributor to investment within thechemicals sector, Sappi in wood & paper and SAB Miller in food & beverages. According toMcGregor (2008: 3), the petroleum sector in South Africa is dependent on imported crudeoil for approximately 65% of its fuel requirement. As a result the South African crude oilsector is dominated by foreign owned multinationals. This explains the higher level ofinvestment within this sector as most of the investment comes from outside the country.The chemical and food & beverages sectors show a positive relationship, whereby a highlevel of industrial concentration is associated with higher investment levels. Meanwhile,wood & paper contributed more to investment, but had a lower level of concentration. Theresults show that the majority of sectors with high levels of experienced higher levels ofinvestment.4.3 Industrial Concentration and ProductivityProductivity is measured as the ratio between output and employment and it provides anindication of how efficiently a unit of output can be produced with a given level of input.One way of increasing productivity in firms is through the increased use of technologywithin the production process.Economic Analysis Directorate 12

Quarterly BulletinFigure 7: Productivity Trends for Manufacturing Sector by Concentration Level,Gauteng, 2004-2008High ConcentrationLower ConcentrationSource: Quantec Research, 2009Figure 7 compares productivity levels by grouping the sectors in terms of industrialconcentration. Sectors that are less concentrated tend to have higher productivity levelsrelative to those that are highly concentrated. However, productivity in most sectors hasbeen declining over the review period, with the exception of metals. This trend is in linewith the theoretical economic framework whereby, productivity of highly concentrated firmsis expected to be low due to the inefficient characteristics that are inherent within them. Inmany instances, lower productivity levels within highly concentrated firms exist becausethese firms are not subject to the competitive pressure that requires innovation. Therefore,these firms do not invest in productivity-enhancing technology.5. ConclusionThis paper analysed the effect that a high degree of industrial concentration could have onemployment, investment and productivity with focus on the manufacturing sector. In termsof the theoretical foundation of economics, highly concentrated sectors are believed to beextracting economic and social welfare by artificially raising prices beyond their marketlevel in order to maximise profits. This paper focused specifically on industrial concentrationwithin the manufacturing sector, as it is believed to be one of the highlyEconomic Analysis Directorate 13

Quarterly Bulletinconcentrated sectors and it plays a large role in both the national and provincial economies.The paper explored the existence of a relationship between industrial concentration andemployment, investment and productivity. While data limitations prohibited a morecomprehensive study, the research has nonetheless found that a higher degree of industrialconcentration does not necessarily lead to lower employment. Also, higher concentration ispositively related to investment and negatively related to productivity. In conclusion, highlevels of industrial concentration do not necessarily lead to lower employment, lowerproductivity and lower investment but the impacts are sector-specific.Economic Analysis Directorate 14

Quarterly Bulletin6. ReferencesAdvanced Manufacturing Technology Strategy (AMTS). 2003. A National AdvancedManufacturing Technology Strategy for South Africa. Pretoria: The AMTS ImplementationUnit.Bikker, J.A. & Haaf, K. 2001. Competition, concentration and their relationships: Anempirical analysis of the banking sector. Canada: De Nederlandsche Bank (DNB)Demsetz, H. 1973. “Industry Structure, market Rivalry & Public Policy”. Journal of Law andEconomics. Vol.16. pp 1-9Fedderke, J. & Naumann, D. 2005. An Analysis of Industry Concentration in South AfricanManufacturing. Cape Town: School of Economics, University of Cape TownFedderke, J. & Simbanegavi, W. 2008. South African Manufacturing Industry Structure andits Implication for Competition Policy. Cape Town: School of Economics and ERSA,University of Cape TownFedderke, J. & Szalontai, G. 2005. Industry Concentration in South African Manufacturing:Trends and Consequences. Cape Town: School of Economics, University of Cape TownFerguson, P.R. & Ferguson, G.J. 1998. Industrial Economics. 2 ndPalgraveedition. New York:Gauteng Economic Development Agency. 2009. Quarterly Economic Bulletin. Johannesburg.GEDAHay, D. 1993. ‘The Assessment: Competition Policy’, Oxford Review of Economic Policy,9(2).pp 1-26McGregor, G. 2008. Research Report on Manufacture of Petrol. Johannesburg: Who OwnsWhomRoberts, S. 2004. The Role for Competition Policy in Economic Development: The SouthAfrican experience. Pretoria: Trade and Industrial Policy Strategies (TIPS)Economic Analysis Directorate 15

Quarterly Bulletin7. Appendices7.1 Case StudiesBikker & Haaf (2001:22) argues that ‘a higher level of concentration in the market isassured to foster collusion among the firms and reduce the degree of competition in thatparticular market.’ Furthermore, Demsetz (1973:5) states that large firms would tend toearn high profits in concentrated firms either through good performance or by colludingwith other firms in order to set prices at a level that is higher than the market price.In South Africa a number of firms have been found to have behaved in an uncompetitivemanner and investigations into these firms were initiated due to complaints and abnormalprofits observed. This prompted the Competition Commission to take action. The followingsection provides a number of high profile cases of collusion, and how competitioncommission responded in addressing those cases.7.1.1 Steel FirmsNine South African steel firms which were found guilty of collusion. ArcelorMittal SouthAfrica, Barloworld Robor, Pro Roof Steel Merchants, Kulungile Metals Group, Scaw MetalsGroup, Cape Gate and Cape Town Iron Steel Works, Trident Steel, Macsteel Holdings, andHighveld Steel & Vanadium Corporation. The Competition Commission started investigatingthis sector after it was alleged that these firms met to fix their prices. ArcelorMittal, as thedominant supplier of steel owning 52% of steelmakers in South Africa was fined R692million in 2007. ArcelorMittal appealed against this decision and won the appeal on the 29 thMay 2009.7.1.2 Pharmaceutical FirmsThe four pharmaceutical firms that were involved in the collusive practices were AdcockIngram Critical Care, Dismed Criticare, Thusanong Health Care, Fresenius Kabi South Africa.Adcock Ingram, the leading supplier of hospital products in South Africa, teamed up with itscompetitors, as listed above, in order to fix prices. The Competition Commission beganinvestigating in 2005. Fresenius Kabi South Africa confessed its involvement in the carteland in 2007, Adcock Ingram was fined R53 million. Adcock Igram only agreed to pay a finein 2008 after admitting its involvement in the collusion.Economic Analysis Directorate 16

Quarterly Bulletin7.1.3 Dairy FirmsSeven dairy firms that were found to be involved in collusion were Clover, Parmalat,Ladismith Cheese, Woodlands Dairy, Lancewood, Milkwood Dairy and Nestlé. TheCompetition Commission started investigations in 2005 and concluded that these firms werefixing prices for raw and retail milk.The commission alleges that Clover, Parmalat, Woodlands and Nestlé entered into longtermsupply and exchange agreements to sell their surplus milk to each other rather thanselling it at lower prices to end users. This arrangement enabled the colluding firms tomaintain the price of milk at artificially high levels.7.1.4 Crude Oil FirmsSasol is the world’s top producer of fuel from coal, and is also a major producer of fertiliserand explosives. The case against Sasol began in 2003. Sasol was found to be colluding withOmnia and Yara in the supply of nitrogenous fertiliser. In 2009, Sasol was fined R250million for colluding and price fixing after admitting to cartel conduct in two fertilizer cases.Sasol was initially fined R188 million, however due to other cartel allegations which arosethereafter, the fine was increased to R250 million. Sasol was then ordered to end all formsof anti-competitive behaviour and to implement a compliance programme. However, Omniaand Tara still deny the allegations of collusive conduct with Sasol.7.1.5 Breakfast Food FirmsThe Competition Commission undertook investigations into the breakfast food sector aftersuspecting price abuse. Tiger Brands was then found colluding with its rivals to fix the priceof bread in 2007. Rivals which were involved were Tiger Brands (Albany Bakeries), Pioneer(Sasko & Bokomo), Premier Milling (Blue Ribbon), and Foodcorp (Sunbake & Woolworths).After Tiger Brand admitted to the collusion, it was fined R98.8 million by the CompetitionCommission.The above mentioned cases discussed in brief are all within the manufacturing sector. Theimportance of the manufacturing sector to the national economy prompted the CompetitionCommission to start with their investigation into this sector. The firms reviewed as casestudies all involve firms ranked within the top 100 firms such as Sasol and Tiger Brands.Economic Analysis Directorate 17

Quarterly Bulletin7.2 Measures of ConcentrationMeasures Equations DefinitionHerfindahl-Hirschman Index (HHI) HHI= ∑S i² HHI is the sum of the squaredmarket shares of all firms inthe sector. Zero value meansperfect competition, onevalue means monopolyRosenbluth Index (RI) RI = 1/ (2∑iS i-1) RI is a summary measure ofconcentration, taking intoconsideration all firms in amarketGini Coefficient (GC) GC = 1-(2∑iS i-1)/n GC is a measure of inequalityin the size distribution offirmsConcentration Ratio (CR) CR = ∑S i, k

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