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Market concentration is the concept that allows different distributions of the shares of various companies’ production within a market. In other words, it is a measure of monopolistic phenomena that helps one to determine the extent to which a single firm has control or dominance within a market. Market power is the extension of this phenomenon and describes the ability of a company to raise prices as a result of its monopoly of the market (in a market where competition is fierce, prices are more likely to fall than they are to rise—unless there is collusion among firms).
Market concentration can be measured by the concentration ratio, which assesses the combined market share of the top companies within a specific industry; share refers to any relevant indicator, such as employment, sales, etc. The Herfindahl-Hirschman Index is one type of market concentration measure and is taken by squaring the percentage of market share of industry companies and adding them. If the index is low, it means there is a lot of competition. If it is high, it means the market is concentrated in the hands of a few companies (Cutler, Morton, 2013). Market power can be measured in a variety of ways, such as by conducting a cross-section regression analysis to see where industry profit rates are; price-concentration studies; auction data, and so on. Mergers, monopolization and collusion are all indicators of market power,...
All of these terms relate to the principle of competition because they are, in essence, opposed to it: market concentration and market power are means by which a dominant player can eradicate competition and take the market for itself. Amazon is a good example of this happening today in the retail space. Because it has investors who do not care if the company loses money on every transaction, just so long as it gobbles up market share, the company is able to continue to grow and branch out.
In the health care industry, market power and choice are important concepts that determine the extent to which patients feel they have real options when it comes to obtaining health care. Representatives responsible for crafting legislation to help protect patients and to ensure that the health care industry sees free market competition must also consider the health care companies themselves and their need to be able to produce a profit and operate under the red tape of governmental regulation. It is, without question, a difficult balance to achieve.
As a result health care legislation has impacted the country in diverse ways. The ACA was passed to help make health care more affordable and more available to everyone—but part of the justification of this law was the concept that all people would be mandated to buy insurance…
References
Cutler, D., Morton, F. (2013). Hospitals, market share, and consolidation. JAMA, 310(18): 1964-1970.
Pope, C. (2014). How the Affordable Care Act fuels health care market consolidation. Retrieved from http://www.heritage.org/health-care reform/report/how-the-affordable-care-act-fuels-health-care-market-consolidation
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