Vnu journal of Science: Policy and Management Studies, Vol. 3, No. (2017) 21-29

particular market is being constituted by large

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Unit 1

particular market is being constituted by large 
firms or small businesses. The C4 index counts 
the market share of the four largest firms in the 
market. C4 above 80% indicates that the market 
is highly concentrated. The downside of the C4 
and the like indices is that only a small number 
of the largest firms in the market are taken into 
account. That is the high C4 index can be 
because of two very large enterprises, or many 
small businesses competing in the market.
The Hirschman-Herfindahl index (HHI) is 
more widely used than C4 index to evaluate the 
market concentration. Cowling and Waterson 

D.T.V. Duc, N.P. Hung / VNU Journal of Science: Policy and Management Studies, Vol. 33, No. 2 (2017) 21-29 
[7] demonstrates that the HHI associated with 
the profitability of the firm represents the level 
of competition in the market. HHI is the sum of 
the squares of the market shares of enterprises 
in a market. If the HHI is at 10,000, the market 
is monopolistic (only one enterprise). Low HHI 
value indicates that the market is highly 
competitive. High HHI value indicates the low 
level of competition and high level of 
monopoly in the market. The value of HHI 
below 1,000 deems there to be no significant 
market power in a given market [3].
Due to its usefulness and simplicity, HHI is 
calculated in many studies of competition. The 
US Department of Justice has used the HHI in 
antitrust investigations in cases of merger 
consolidation [4]. [8] uses HHI to investigate 
the concentration level of India mobile market 
and concludes that the market is highly 
fragmented where many operators are under 
10% subscriber market share. [9] indicates high 
HHI of Ghana telecommunications market 
examines by an empirical study the relationship 
between HHI and earning of dominant players 
in the telecommunications markets of Middle 
East and Africa countries. [11] provides an 
revision- an interval estimate- for HHI when the 
knowledge about the market is incomplete. 
Actually, these indicators are useful, but 
researchers and policymakers still cannot 
determine exactly at which benchmark of HHI 
the market is supposed to be effectively 
competitive [3, 12]. 
[1, 13] and [14] and many other studies 
estimate the price elasticity of demand and 
supply to evaluate market competition and 
examine whether the largest enterprises are able 
to unilaterally increase prices in the market 
while still maintain the demand for some 
services. Price elasticity of demand reflects the 
responsiveness, or elasticity, of the quantity 
demanded of a good or service to a change in its 
price. If the demand curve is less elastic, service 
consumers are unlikely to give up the service 
even though the prices may increase. This 
means that the business obviously has the 
market power. Hakim and Neaime [15] argues 
that if demand for telecommunications services 
is less elastic, firms have an incentive to collude 
on the market. However, the elasticity of 
demand indicates only the ability of the firm to 
conduct non-competitive behaviors; the actual 
abuse of the market power is not reflected 
clearly by the price elasticity of demand. 
Empirical studies on demand elasticity 
require much of data. There are two different 
approaches of such studies. The first approach 
is based on secondary data either highly 
aggregate data on the whole market and/or 
firm-specific data. The second approach uses 
primary data through surveys of consumers’ 
behavior. Hausman [16], for example, uses data 
from 30 markets in the United States between 
1988 and 1993 and finds a price elasticity of 
mobile service access of -0.51. The UK 
Competition Commission [17], summarizing 
the various research results, reports the price 
elasticity of demand for subscription ranging 
from -0.08 to -0.54 and price elasticity of 
demand for mobile originated call from -0.48 to 
-0.62. Grzybowski [18] applies structural 
models to study the competitive behavior of 
mobile operators with data from EU countries 
in the period of 1988-2002. Research results 
show the price elasticity of demand for mobile 
services between -0.2 and -0.9. 
Telecoms regulatory bodies use HHIs and 
price elasticity of demand to decide forms of 
regulation [4, 19]. TATT [19] specifies that 
price elasticity analysis is an essential step 
taken to identify market dominance in Trinidad 
and Tobago. Jamison et al. [4] studies three 
cases of telecoms competition in the US, UK 
and Japan. In the case of examining the level of 
competition in the long-distance telephone 
market where AT&T dominated the market 
share, the FCC measured factors including (1) 
AT&T's market share and market trend, (2) 
price elasticity of supply for services to 
determine competitor's service substitution for 
AT&T's services, (3) price elasticity of demand, 

 D.T.V. Duc, N.P. Hung / VNU Journal of Science: Policy and Management Studies, Vol. 33, No. 2 (2017) 21-29 
and (4) cost structure, the size and resources of 
AT&T and its competitors. As a result, in 1993, 
the FCC decided that AT&T was not a 
dominant player in the market, despite the fact 
that AT&T's market share in the long-distance 
voice market in 1994 was still 55.2% in revenue 
telecommunication regulatory body of UK
Ofcom, also used market share, price elasticity 
of supply and demand to conclude that 
Vodafone, O2, Orange, T-Mobile and H3G are 
players with significant market power in the 
mobile call termination market. Then Ofcom 
took some control of the price of mobile 
termination services from April 1, 2007 to April 
1, 2011. 
However, there are some complexities 
involved in the estimation and use of the 
information of price elasticity of demand. These 
include the change of price elasticities as the 
prices themselves change, the difference of 
long-run and short-run elasticities of demand 
for goods and services of which consumers 
display some inertia, the problems associated 
with estimation of demand curves where market 
equilibria in supply and demand are observed 
points. (see [20]). All these complexities are 
telecommunications services. 

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