Relative Market Power versus Concentration as Measure of Market Dominance: Property and Liability Insurance

This paper utilizes a rank-size function to investigate market concentration in lieu of well-known measures. For comparison, two measures were chosen: Theil’s entropy and the Herfindahl. The empirical results are based on premiums written for twelve lines of property and liability insurance. While the two concentration measures rank the lines for the level of concentration in almost complete unanimity, the empirical results indicate that the ranking breaks down for the rank-size function. This important finding gives substantial strength to advocates of the market share as measure of market power as opposed to the market concentration measure. [