The role of market share and concentration in firm profitability: implications for competition policy

Simon Feeny, Mark Rogers

Research output: Contribution to journalArticle

Abstract

This paper analyses empirically the relationship between market share and profitability in a sample of 722 large Australian firms. This issue is linked to merger policy in Australia since the Australian Competition and Consumer Commission (ACCC) guidelines state that, in many cases, creating a market share in excess of 40 per cent is a reason for an investigation. Using the most up-to-date Australian firm-level data, it is shown that profitability tends to rise the market share exceeds 30%. This result suggests that the merger policy guidelines are broadly in agreement with empirical evidence. However, the empirical results suggest a U-shaped relationship between market share and profitability, with profitability first declining and the rising. This result challenges traditional theory and suggests that the market share to profitability relationship is complex.
Original languageEnglish
Article number0558687
Pages (from-to)115-132
Number of pages18
JournalEconomic Analysis and Policy
Volume30
Issue number2
Publication statusPublished - Sep 2000

Keywords

  • concentration
  • firm level
  • firm
  • merger
  • shares

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