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The 5 biggest car producers in the UK

More than 80% of the production of the five largest UK car producers (Jaguar Land Rover, Nissan, Peugeot S.A, BMW and Honda) is exported.

All of these companies are subsidiaries of foreign-owned multinationals.

Also, according to the Competition and Markets Authority (CMA), the UK’s competition regulator, only three of the 10 best-selling car models in that nation are produced locally, which demonstrates the heavy dependence on imports for UK consumption.

On the other hand, the top five sellers (VW, Ford, BMW, PSA and Mercedes) represent 62% of the market and the Herfindahl-Hirschman Index (HHI) of sellers is 967 (calculated with data from SMMT and Statista).

To understand the index: The HHI is a measure of concentration that reflects the sum of the squares of the shares of each company at a given level of aggregate activity. It varies between 0 and 10,000, where a value of 0 represents perfect competition and 10,000 represents a monopoly.

Product markets with HHIs of more than 1,000 are generally considered concentrated and those with HHIs of more than 2,000 as highly concentrated.

Car producers

However, the Business Structure Database (BSD) records this industry’s HHI = 1,837 (because it only records UK domestic production) and C5 = 78.8 per cent.

The C5 indicator is equal to the combined market share of the five largest companies in the country. It is the simplest indicator of competence.

So, in this case, the BSD concentration statistic would significantly overestimate the concentration of sellers.

Two factors are at play: the presence of importers serves to diminish the share of UK producers in domestic markets, while the presence of such a large volume of UK exports suggests that UK producers have a relatively minor in the market of that country.

The literature on industrial organization shows, through game-theoretic models of collusion, that greater concentration tends to increase prices, and reduces output or welfare. However, concentration is an imperfect measure of competitive behavior.

For example, the Bertrand model without differentiated goods, or debatable market theory, shows that it is possible to have a perfectly competitive market where price equals marginal cost, even with a monopolistic or duopolistic market structure.

Therefore, other measures of competition that are more related to the conduct of companies are necessary to complement the C5 indicator.

 

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