Efficiency and concentration

✍ Scribed by Satya R. Chakravarty

• Book ID: 104648147
• Publisher: Springer
• Year: 1992
• Tongue: English
• Weight: 460 KB
• Volume: 3
• Category: Article
• ISSN: 0895-562X
• DOI: 10.1007/bf00158355

✦ Synopsis

Baumol, Panzar, and Willig [1982]

introduced the idea that there may be efficiency gain from merger of two or more firms. This paper shows that the Debreu [1951]-Farrell [1957] type index suggested by Fare [1986] to calculate the gain in efficiency from merger of firms can be related to a concentration formula. We then introduce a dominance relation consistent with the ordering generated by the Fare gain function. Next, it is shown that a normalized form of the gain function satisfying a homogeneity condition becomes a subclass of the Hannah Kay [1977] concentration indices. A limiting case of this subclass becomes the entropy-based index of concentration.