Concentration versus Market Share: Which Determines Performance and Why Does it Matter?

The empirical research reviewed in this article has led us to conclude that market share, not concentration, is the primary structural determinant of profitability. Market share increases profits through the benefits of scale economies. In contrast, concentration affects profits by facilitating oligopolistic coordination. We conclude therefore that scale economies are far more powerful than oligopoly power in determining profit levels. For this reason, we believe that provisions of our antitrust laws based on the presumption that concentrated market structures lead to resource misallocation (i.e., antimerger and antimonopoly provisions of the Clayton and Sherman Acts) are misguided and may well be leading to decreased efficiency.