Extent of market concentration in South Africa’s product markets
5 October 2018
The Commission has noted the article by Tim Cohen, senior editor of the Business Day, titled “Competition bill is based on dodgy numbers” published in the Business Day on 5 October 2018. In the article, Mr Cohen states that he is not “an economist or expert on competition, but a quick examination of the data suggests the notion of ‘concentration’ is either overstated or false. I wish someone would re-examine the factual premises more thoroughly and scientifically than I am able to. I might be wrong…”
In order to facilitate a more rigorous and informed debate, the Commission wishes to re-share its market concentration study which it published earlier this year as a working paper.
Market concentration reflects the number and size - distribution of firms in a market, in other words, it measures the structure of a market. One objective of competition regulation is to reduce market concentration towards lowering prices and, more generally, promoting rivalry and competition.
There are a number of different ways to measure concentration. Concentration indexes measure the ability of firms to raise price above the competitive level. The first step is to define the relevant market. Market definition is a tool used to identify and define the boundaries of competition between firms. The relevant market contains the most significant competitive alternatives available to the customers whilst the relevant product market is the set of products that customers consider to be close substitutes.