Concentration Measurement Under Cross-ownership: The Case of the Spanish Electricity Sector

Authors: Campos J.¹; Vega G.²

Source: Journal of Industry, Competition and Trade, Volume 3, Number 4, December 2003 , pp. 313-335(23)

Publisher: Springer

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Abstract:

When major investors own shares in several firms in the same industry, the traditional approach to concentration measurement by the Hirschman–Herfindahl Index (HHI) fails to accurately reflect the level of competition in the market. To address this problem we derive a generalized HHI formula (GHHI) based on the investors’ degree of control over each firm. We test alternative definitions of this control with actual data from the Spanish electricity sector and show that recent decisions in this industry, particularly the failed merger between the largest firms, Endesa and Iberdrola, could have been affected had the GHHI been used by the competition agency.

Keywords: Hirschman–Herfindahl index; cross-ownership; electricity industry

Document Type: Research article

DOI: http://dx.doi.org/10.1023/B:JICT.0000026857.96107.16

Affiliations: 1: Department of Applied Economics, University of Las Palmas, 4, Saulo Torón, 35017, Las Palmas, Spain jcampos@daea.ulpgc.es, Email: jcampos@daea.ulpgc.es 2: Department of Applied Economics, University of Las Palmas, 4, Saulo Torón, 35017, Las Palmas, Spain

Publication date: 2003-12-01