Problems
The usefulness of this statistic to detect and stop harmful monopolies however is directly dependent on a proper definition of a particular market (which hinges primarily on the notion of substitutability).
- For example, if the statistic were to look at a hypothetical financial services industry as a whole, and found that it contained 6 main firms with 15% market share apiece, then the industry would look non-monopolistic. However, one of those firms handles 90% of the checking and savings accounts and physical branches (and overcharges for them because of its monopoly), and the others primarily do commercial banking and investments. In this scenario, people would be suffering due to a market dominance by one firm; the market is not properly defined because checking accounts are not substitutable with commercial and investment banking. The problems of defining a market work the other way as well. To take another example, one cinema may have 90% of the movie market, but if movie theatres compete against video stores, pubs and nightclubs then people are less likely to be suffering due to market dominance.
- Another typical problem in defining the market is choosing a geographic scope. For example, firms may have 20% market share each, but may occupy five areas of the country in which they are monopoly providers and thus do not compete against each other. A service provider or manufacturer in one city is not necessarily substitutable with a service provider or manufacturer in another city, depending on the importance of being local for the business—for example, telemarketing services are rather global in scope, while shoe repair services are local.
The United States Federal anti-trust authorities such as the Department of Justice and the Federal Trade Commission use the Herfindahl index as a screening tool to determine whether a proposed merger is likely to raise antitrust concerns As the market concentration increases, competition and efficiency decrease and the chances of collusion and monopoly increase.
Read more about this topic: Herfindahl Index
Famous quotes containing the word problems:
“Men decide far more problems by hate, love, lust, rage, sorrow, joy, hope, fear, illusion, or some other inward emotion than by reality, authority, any legal standard, judicial precedent, or statute.”
—Marcus Tullius Cicero (106–43 B.C.)
“Our young people are diseased with the theological problems of original sin, origin of evil, predestination, and the like. These never presented a practical difficulty to any man,—never darkened across any man’s road, who did not go out of his way to seek them. These are the soul’s mumps, and measles, and whooping- coughs, and those who have not caught them cannot describe their health or prescribe a cure. A simple mind will not know these enemies.”
—Ralph Waldo Emerson (1803–1882)
“She has problems with separation; he has trouble with unity—problems that make themselves felt in our relationships with our children just as they do in our relations with each other. She pulls for connection; he pushes for separateness. She tends to feel shut out; he tends to feel overwhelmed and intruded upon. It’s one of the reasons why she turns so eagerly to children—especially when they’re very young.”
—Lillian Breslow Rubin (20th century)