Measure to assess market dominance and Herfindahl-Hirschman index. Characteristics comparison and applications
Widely used in the antitrust laws Herfindahl-Hirschman Index evaluates the level of market concentration. However, it fails to say whether the share of one or more firms is so high that it leads to high monopoly prices. This encourages researchers to propose new methods of assessing the level of market power. The article deals with one of these new criteria proposed by Melnik A., Shy O., Stenbacka R. In contrast to Hirschman-Herfindahl index characterizing concentration measure of the industry a new measure helps to determine whether the firm has a dominant position. Undeniable advantages criterion is that its use requires only the shares of the two largest players in the market and that it takes into account the characteristics of the market such as entry barriers. Markets are characterized for which the criterion for dominance and the Herfindahl - Hirschman index give different assessment of the competitive environment. Both indicators are used to assess competition level for Russian coal market. Russian coal market is described to the extent necessary for the task. Some aspects and restrictions of terms «geographic market» and «product market» are revealed.