Price Competition and Market Structure: The Impact of Cartel Policy on Concentration in the UK

Abstract

This paper examines the impact of ¢rms' conduct on market structure. It studies the evolution of concentration in UK manufacturing following the abolition of cartels using a theoretical framework based on Sutton's theory of market structure and a panel data set of fourdigit industries over 1958^1977. The econometric results suggest that the intensity of price competition has a positive e¡ect on concentration in exogenous sunk cost industries as well as in advertising-intensive and R&D-intensive industries. The concentration-market size relationship, while negative in exogenous sunk cost industries, breaks down in industries with high advertising or R&D intensity.

Public Policy and SME Development

“…Further, although a high market concentration has traditionally been regarded as conducive to the abuse of market power by firms, this is not necessarily the case: the opposite may be true, with more intense competition reducing profit margins and the number of firms that can survive in an industry (Symeonidis, 2000). Symeonidis (2000: 22) argues that " [t]his means that concerns with the level of concentration need not take precedence over the need to ensure that competition remains effective, i.e., firms do not engage in collusive practices and no barriers to entry are created.…”

A Methodology for the Evaluation of Competition Policy

“…For most European jurisdictions, this reduction in overcharges reached by the presence of tough cartel enforcement regimes was already large enough to cover a substantial proportion of the overall budgets of the respective antitrust authorities (including the budget of DG Competition at the European Commission). Finally, Symeonidis 73 analyses the effect of the introduction of anticartel laws in the United Kingdom in 1956 and finds that price competition increased and led to lower margins in industries which had been previously cartelized.…”

Assessing Excess Profits from Different Entry Regulations

“…Besley and Case (2000) explored the use of di¤erent methods for estimating the incidence of policies in situations where there was a concern about policy endogeneity. Symeonidis (2000 and2007) showed the utility of policy reforms for comparing outcomes before and after the introduction of laws, speci…cally the law prohibiting cartels in the UK in the late 1950s.…”