Davies, Todd; (2025) Market Diversity and Market Churn: Measures of Competitive Structure. SSRN: Amsterdam, Netherlands.

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Abstract

Measuring competitive intensity is a crucial endeavour in competition law and policy. Structural metrics are those which quantify the degree of competition present in a market based off of market shares. The most commonly used structural metrics are those that measure market concentration. This paper argues that measuring market concentration is unsatisfactory, and proposes an alternative suite of metrics drawn from theoretical ecology which measure market diversity. It is split into three parts. The first part outlines flaws in commonly used concentration metrics. The second part introduces a suite of metrics to measure diversity. These metrics share a common theoretical framework, and include a metric to measure diversity within a single market, a metric to measure diversity within a group of markets, a metric to measure market dynamism, and ways to account for heterogeneity between firms and between products. The last part makes descriptive, theoretical and normative arguments for why competition law, regulation and policy should prefer diversity metrics over concentration metrics.

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