Thursday, April 1, 2010
Posted by D. Daniel Sokol
Jerry A. Hausman (MIT - Econ) and David W.G. Parker (Frontier Economics) analyze MARGIN–CONCENTRATION ANALYSIS IN THE UK GROCERIES INQUIRY.
ABSTRACT: The UK Competition Commission's recent inquiry into the Groceries sector made the unusual recommendation that organic growth by large incumbents in concentrated areas be prohibited. The key support for this recommendation came from an econometric analysis of the relationship between margins and concentration. We describe the analysis and demonstrate that it suffers from material flaws that cast doubt on the validity of the conclusions drawn from it, and thus on the remedy itself. We identify issues around the nature of debate between investigated parties and the UK authorities on technical issues and make some suggestions for changes to processes.