What Is a Fragmented Industry?
Industry Concentration Ratio (Concentration Ratio), also known as Industry Concentration Ratio or Market Concentration Rate, refers to the market share (output value, output, sales, sales volume) of the top N largest companies in the relevant market of an industry , Number of employees, total assets, etc.), is a measure of the concentration of the market structure of the entire industry, used to measure the number of enterprises and the difference in relative size, is an important quantitative indicator of market power.
Industry concentration
- Industry concentration is the most basic and important factor in determining the market structure, and it reflects the market competition and
- The logic of the traditional judgment method is to use a certain indicator of the previous companies (
- The so-called company control market refers to the place where control of the enterprise is obtained by collecting equity or voting agency rights, and the purpose of taking over and replacing management is achieved. From a micro level, the company's control market is used to form bad managers. Alternative external threats play a very important role in the corporate governance structure. Manne (1965) pointed out in his seminal paper that the existence of a market for corporate control greatly weakened the so-called separation of ownership from control. Fama (1980) also pointed out that even if there is only the possibility of being taken over, low stock prices will put pressure on management to change their behavior and be loyal to shareholders. From a macro perspective, the market for corporate control is the main place for a country to adjust its industrial structure and improve its industrial structure. Studies by Ruback (1983) and others have already shown that acquisitions and mergers based on market principles are conducive to the optimization of resource allocation.
- Industry Concentration and Corporate Control Market
- The industry concentration of mature industries can reflect the efficiency of the company's control market. The sign of a mature industry is the excess supply capacity of the industry, the profit margin of the product is declining, and the industry is fiercely competitive. Only those companies with economies of scale can survive. Because they use relatively mature technologies, costs are controlled in the competition It is decisive, so small and medium-sized enterprises often cannot compete with large enterprises. This situation causes the industry's market and output to be further concentrated to large enterprises, thereby further increasing the concentration of the industry.
- The trend of concentration of market share to large industry players will not continue indefinitely. The reasons are: first, any company has its boundaries, and expansion beyond a certain scale may lead to diseconomies of scale; second, non-natural monopoly As far as the industry is concerned, any country has some kind of anti-monopoly laws and regulations to prevent the loss of social welfare caused by excessive monopoly. The third is the change in the rules of the game due to the upgrading of the industry's core technology. The cost-determined market may become a technology-determined market. The entry of new enterprises may cause the trend of market distribution to reverse.
- The reason for preventing excessive monopoly is that most industries in real life do not have the perfect competition market structure advocated by textbooks, although in theory this market structure is the most efficient. The market structure that appears in mature industries in real life is mostly an oligopolistic market structure, that is, half or more of the market is monopolized by companies around the host company. Real life is actually the economy of scale and complete monopoly. There are two tradeoffs between them. This market structure is often not the design of a certain government. On the contrary, it is exactly the result of market selection and has been proven in different industries. Merrill Lynch, Goldman Sachs and Morgan Stanley in investment banking. Unlike traditional economic theory, modern industrial organization theory proves that this oligopoly market structure is actually very efficient. Harold Demsetz (1973), a master of industrial economics, points out Enterprises can occupy a large market share, and with the increase of industrial concentration, the good performance of outstanding companies is due to efficiency rather than market monopoly.
- For a country that has not yet universally formed an oligopoly market structure (the meaning of the term universal refers to most industries), how does the market structure change from the existing state to the oligopoly market structure? There are two ways to change. One is that large enterprises expand production capacity through internal investment, and small enterprises gradually reduce production capacity through gradual contraction. This is of course a way to transform to an oligopoly market structure. It does exist in real life, but this method is difficult to become a mainstream method due to the following reasons: First, small businesses may not be willing to withdraw, despite being at a disadvantage in the competition, but Since sales prices are still greater than the variable costs of production, or simply based on employment considerations (which may be the main reason why small businesses are reluctant to withdraw in China), shrinking small businesses can be a lengthy process. On the other hand, large-scale expansion of production capacity by large enterprises through internal investment and gradually increasing market share may also be a long process, and the process of market expansion may be resisted by small enterprises.
- The other way is through the market of corporate control. In layman's terms, that is, through the merger of superior enterprises to inferior enterprises or the merger of superior enterprises and superior enterprises is not realized, although in most cases the traditional As far as the industry is concerned, the dominant enterprises are also large enterprises, but this is not always the case. Due to the magic of the capital market, small enterprises often acquire large enterprises. Therefore, the concept of superior enterprises is used instead of large enterprises. From the international experience, the realization of oligopoly market structure is mainly based on mergers and acquisitions rather than internal expansion or contraction. This can be explained by the large-scale mergers of the financial industry and the automobile industry that have occurred frequently in recent years.
- The above facts illustrate the following logic: that the oligopoly market structure of mature industries is an inevitable result of market evolution, and the oligopoly market structure of a country is generally formed and mainly through the company's control market. Here, it is actually an implicit Hypothesis: Assume that the market for corporate control is efficient, that is, if the corporate merger is profitable (or a Parato optimization for the original situation), then this merger will occur. Only under an efficient corporate control market can the market spontaneously evolve into an oligopolistic market structure. Conversely, if the corporate control market is inefficient, the market evolves into an oligopoly market structure. It is so slow that the increase of industry concentration in a country will be very slow and its overall level will be significantly different from the general international level. A conclusion derived from this is that the efficiency of the company's control market also determines the changing trend and level of industry concentration. Because the efficiency of the company's control market is unobservable, and the industry concentration is observable, so Industry concentration can be used as an indicator of the efficiency of a company's control market.
- Considering that the market for corporate control is still essentially a reflection of the degree of marketization of a country's economy and the efficiency of capital markets, and capital market efficiency has been relatively uniformly divided internationally, the classification method of capital market efficiency is still imitating The market efficiency of control rights is divided into three types, namely strong effective, medium strong effective and weak effective. The relevant categories are determined based on the average industry concentration of mature industries in the country as the evaluation standard. The United States has a high degree of marketization and focuses on the use of corporate control. A country with a role in the market of rights can therefore be regarded as a strong and effective company control market in the United States. If the overall level of industry concentration of a mature industry in a country reaches or approaches the level of the United States, the company's control market in that country can be regarded as highly effective.