Industrial Concentration and Market Integration in the European Union

Abstract

Unlike previous cross-section studies which test predictions from the theory of industrial structure, we do not make an ex ante assumption about the geographical market at which competition takes place. We develop an econometric technique that endogenously determines whether the EU or member state is the appropriate market level for each industry, while also estimating a structural model of concentration and market size. Another novelty is that we use European national as well as aggregate EU data. Strong support is found for the importance of endogenous fixed costs in the theory of market structure.

Market Structure, R&D and Advertising in the Pharmaceutical Industry

“…This paper has two main objectives. First, this industry study complements and reinforces earlier cross-section econometric work (Sutton, 1991;Lyons and Matraves, 1996;Robinson and Chiang, 1996;Lyons, Matraves and Moffatt, 1998). Specifically, by concentrating on the experience of an individual industry, we add to the case evidence accumulated for major national markets in the food and drink industry as detailed in Sutton (1991).…”

“…Mean concentration for industries characterised by both intensive advertising and R&D expenditure was 44% in the US and 40% in the EU market in 1987 (Lyons, Matraves and Moffatt, 1998). Table 6 shows that concentration is much lower in the pharmaceutical industry: 26% for the US, 19% for the EU.…”

Lower Bounds of Concentration in a Small Open Economy

“…The empirical work in Sutton (1991) considered only advertising, but the approach has been applied by subsequent writers to both advertising and R&D (Robinson and Chiang, 1996, Lyons and Matraves, 1996, Symeonidis, 2000, Lyons, Matraves, and Moffatt, 2001, Giorgetti, 2003 Robinson and Chiang (1996) use separate estimations for industries with different types of competition. Sometimes also the slope coefficients are allowed to vary by industry type to test the second prediction.…”

“…average frontier (i.e., OLS estimation) has been used by Symeonides (2000), who found that the errors had a wrong skew to be based on a stochastic frontier, and by Lyons, Matraves, and Moffatt (2001), among others.…”

The Effect of Entry on R&D Investment of Leaders: Theory and Empirical Evidence

“…If products are homogenous (in the Sutton terminology a high -industry), an entrant o ering a product with a higher quality, captures a relatively large market share as many consumers are interested in a superior product. In contrast, if products are distant substitutes (low -industry) a rm investing in improved 9 Lyons et al (2001) use engineering estimates based on the rms' technologies employed in the production process.…”