Market power and market concentration in South Africa: Evidence from administrative data

by Joshua Budlender

The South African economy is generally understood to be characterised by very high levels of industrial concentration and attendant firm-side market power. There is significant debate about the implications of this apparent concentrated market power in academic and policy circles, as well as in the public sphere. At the same time, an emerging US literature suggests that market power in that country may be linked to phenomena relevant to South Africa such as rising unemployment and inequality. However there is no economy-wide evidence on market structure and market power outside of manufacturing industries, and the manufacturing literature suffers from specification issues and data problems. Administrative firm-level panel data from the South African Revenue Services and National Treasury presents a unique opportunity to address this lacuna. This paper would use the full panel to provide evidence on market structure and market power for industries and sectors across the South African economy. It would present summary statistics on concentration, entry and exit rates, and two measures of the mark-up, while multivariate regression would be used to examine how mark-ups are correlated with concentration and firm size. This paper would provide new evidence necessary for a more evidence-based public debate, and a base for further investigation.