Changes in concentration, turbulence, and the dynamics of market shares

Most previous studies of the dynamics of industry structure, by emphasizing changes in concentration, conceal much of the nature of underlying competitive processes. Here we employ a stochastic firm growth model, estimated on U.K. data of 1979-1986 for over 200 leading firms, to derive joint predictions about the stability of market shares and the change of concentration. We find that changes in the market shares of surviving firms are the dominant influence on concentration, which is typically fairly stable in spite of considerable market-share turbulence. Advertising plays a major role in the dynamics of market shares and, therefore, affects both concentration and turbulence.