Latest news with #Herfindahl-HirschmanIndex
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Business Standard
2 days ago
- Business
- Business Standard
India Inc's profit boom has a name: It's called the Herfindahl Index
India's top companies are posting record profits. But beneath the surface of this post-pandemic boom lies a structural shift that's going unnoticed by most. It's not just operational efficiency or global tailwinds driving earnings — it's consolidation. And the most telling evidence of this power shift comes from a single number: the Herfindahl-Hirschman Index (HHI). What is the Herfindahl-Hirschman Index (HHI)? The Herfindahl-Hirschman Index, or HHI, is a widely used measure of market concentration. In simple terms, this is a way to quantify how competitive (or monopolistic) an industry is. Albert O Hirschman developed an early version of the index in the 1940s, which was later refined and popularised by Orris C Herfindahl. The tool is now commonly used by antitrust regulators, including the US Department of Justice and the Federal Trade Commission, to assess whether a market has become too dominated by a few large players. How does the HHI work? The HHI measures market concentration by squaring the market share of each firm in a sector and summing the result. The higher the score, the more control is concentrated in the hands of fewer players. The score break-up is: Score below 1,500 indicates a competitive market. Score between 1,500 and 2,500 is moderately concentrated. Score above 2,500 means the market is highly concentrated, often raising red flags for regulators. The maximum score is 10,000, which occurs when a single firm controls 100 per cent of the market (a pure monopoly). Conclusion: The more concentrated the market, the higher the HHI, and the greater the pricing power firms typically hold. Why does this index matter? A rising HHI suggests fewer firms are controlling more of the market. When one or two firms dominate, they can set prices, influence supply chains, and shape consumer options, often at the expense of competition and innovation. What's happening in India? In FY25, the average HHI across eight major Indian sectors jumped to 2,532, crossing into the 'highly concentrated' zone for the first time in over a decade. That's up from 1,980 in FY15 and 2,167 in FY20. It's not just a statistic — it's a story of India Inc's growing pricing power, shrinking competition, and rising profit margins. Which industries have the highest HHI in India? Sectors such as telecom, steel, aviation, and cement now show HHI levels at or near historic highs. In five of the eight sectors studied, including telecom, paints, steel, and two-wheelers, market concentration has reached thresholds considered 'high' by the index. Only paints and two-wheelers have seen a modest decline in concentration over the past decade. This shift has big implications. As competition fades, dominant players gain the power to raise prices and protect margins. From FY20 to FY25, while net sales for India Inc grew at a compound annual growth rate (CAGR) of 12.7 per cent, profits surged much faster: profit before tax grew at 25 per cent, and after tax at 25.7 per cent. Even in the last two years, as revenue growth slowed to 7.6 per cent, profits grew 19 per cent annually. Motilal Oswal analysts project that companies in their coverage universe will post 5 per cent sales growth, but 12 per cent Ebitda growth and 14 per cent net profit growth in FY26. Where does India Inc's power come from? As previously reported by Business Standard, the rising HHI scores are not accidental. A combination of regulatory reforms and economic shocks has steadily tilted the playing field toward bigger players, who are generally better equipped to survive and even benefit from major economic and policy challenges. That consolidation is now reflected in the numbers. For example, in aviation, just three carriers control the bulk of domestic capacity. In telecom, only two private players dominate the subscriber share. In steel and cement, a few conglomerates have gained ground through acquisitions and capacity expansion. What does it mean for Indian consumers? This leads to situations where consumers are grappling with higher prices but limited choices. This is because, as firms find themselves in concentrated markets, they can push through price increases without fear of losing market share, a phenomenon already seen with domestic flight ticket prices. In a few recent cases, the aviation ministry had to step in to control airfares. But what happens in markets that go unnoticed? This trend also explains the widening gap between profit and revenue growth, a phenomenon largely observed in FY25 and expected to persist in FY26. The bottom line is India's corporate landscape is changing. Market share is consolidating, competition is thinning, and profits are climbing. While this may look like a success story for Indian industries on the surface, the Herfindahl Index is a reminder that concentrated power can distort markets, limit consumer choice, and eventually invite regulatory scrutiny.
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Business Standard
3 days ago
- Business
- Business Standard
Corporate margins, earnings soar as mkt concentration rises across sectors
The market concentration as measured by Herfindahl-Hirschman Index (HHI) was higher in six out of eight sectors in FY25 compared to that in FY15 and FY20 premium Mumbai Listen to This Article Corporate India has exhibited strong pricing power in recent years, resulting in a steady rise in profit margins across many sectors despite fluctuations in raw material and energy prices, and a persistent slowdown in revenue growth. The margin expansion has been most pronounced in the post-pandemic period. This improvement in corporate margins has coincided with a steady rise in market concentration in key domestic sectors, as larger players have captured greater market share, either through mergers and acquisitions or through organic growth. Market concentration, as measured by the Herfindahl-Hirschman Index (HHI), was higher in six of eight sectors in FY25
Euractiv
07-07-2025
- Business
- Euractiv
Why are Europe's electricity bills so high? Austria has the answer
With Austrian energy companies refusing to compete with one another, consumers at the mercy of their local hegemons are left paying higher bills than they should – a problem mirrored across Europe. When energy prices in Russian-gas-addicted Austria surged – and Vienna's main utility company almost went bust – the government ordered the competition authority and energy regulator to examine the sector. Two years on, their final report paints a damning picture of an energy market frozen in time. 'After 24 years of liberalisation, there is still no functioning national competitive market,' said Natalie Harsdorf, head of Austria's competition authority, the BWB. Instead of utilities competing nationwide for the business of Austria's millions of households, firms have carved out regional fiefdoms – or as Harsdorf put it, 'we have regional companies that dominate the markets'. Austria has one of Europe lowest contract-switching rates – a key indicator used to gauge market competitiveness – at just 4.5%. A typical new supply contract is currently around 10% more expensive than in neighbouring Germany. The investigation revealed a retail electricity market riddled with 'countless cross-shareholdings between companies'. What that means is that each regional utility owns stakes in others. 'The question arises: do these companies even want to participate in Austria-wide competition?' said Wolfgang Urbantschitsch, head of the country's energy regulator, E-Control. Vienna's main utility firm owns 28% of Lower Austria's EVN, which in turns holds an indirect 36% stake in Burgenland's primary energy provider. Most utilities also own shares in Austria's main power producer, Verbund. So why compete? 'It seems that they do not need to,' Urbantschitsch concluded. The situation has grown so dire that Austria is pioneering a new set of antitrust laws aimed at curbing the dominance of major energy suppliers. Introduced in 2024, the legislation compels firms to match consumer-friendly terms offered elsewhere – or explain why they don't. 'The BWB is now focusing on individual investigations,' Harsdorf said. Europe in trouble Austria is far from alone. Two major indicators suggest the entire EU is struggling to foster real competition for retail electricity consumers. Just 7.15% of European household consumers switched suppliers in 2023, according to market data from the Council of European Energy Regulators (CEER) and EU watchdog ACER. And for all of Austria's flaws, eight countries – including Romania, Slovakia, Poland and Luxembourg – fare even worse. The problem: dominant utilities tend to hold onto consumers. Once switching rates drop below 10%, regulators say 73% of households are locked into a dominant supplier. The Herfindahl-Hirschman Index (HHI), a common measure of market concentration, tells a similar story. In 2023, just five EU countries were in the 'green' – indicating a competitive, unproblematic market. Nine others – among them Belgium, Poland, Italy and Spain – were in the 'orange' zone, showing signs of worrying concentration. A further nine countries were flagged 'red', where one or very few utilities dominate the retail market – leaving consumers vulnerable without firm regulatory intervention. Too often, that oversight is lacking – and Germany offers a cautionary tale. In 2023, local grid operators saw a staggering 20.2% return on investment, an investigation by think tank BNE found. 'If network operators can achieve such returns, then something is fundamentally wrong with the regulatory framework,' said its CEO, Robert Busch. While firms with state-backed monopolies should normally be afforded returns upwards of 5%, in some extreme cases – like EWE – profits surged to 50% on capital, BNE said. (rh, aw)
Yahoo
14-05-2025
- Business
- Yahoo
Warren prods DOJ to sue to block Capital One-Discover deal
This story was originally published on Banking Dive. To receive daily news and insights, subscribe to our free daily Banking Dive newsletter. Sen. Elizabeth Warren, D-MA, urged the Justice Department to sue to block Capital One's pending acquisition of Discover, according to a letter she wrote Tuesday to the agency's antitrust leader, Gail Slater. Warren cited an address Slater gave in late April warning of the risks that consolidation could again – after the 2007-08 financial crisis – create institutions that are 'too big to fail.' 'This transaction will reveal whether you back your words with action,' Warren wrote Tuesday. The DOJ has 30 days to sue after banking regulators approve a merger application, Warren noted. The Federal Reserve and Office of the Comptroller of the Currency gave a green light April 18 to Capital One's $35.3 billion proposed transaction. Warren wrote the Fed on May 1, urging the central bank to reconsider. 'Absent a rescission of the Fed's approval order, the responsibility to prevent this dangerous transaction now falls to the DOJ,' Warren wrote Tuesday. Slater, however, determined there wasn't sufficient evidence to challenge the Capital One deal in court, publications reported last month, citing people familiar with the decision. Nonetheless, Warren pressed that the DOJ 'does not need to have previously filed an adverse comment with regulators' about a deal to attempt to block it. The senator Tuesday expressed disappointment that the DOJ had not filed such a comment – 'despite reportedly finding competitive concerns with the deal.' Warren urged Slater to lean on the Clayton Act – and the DOJ's own updated merger guidelines – to block the Capital One deal, citing that a merger may violate antitrust law if it 'significantly increases consolidation in a highly concentrated market' or 'eliminates substantial competition between firms.' Warren noted that during its initial evaluation of the Capital One-Discover merger last year, DOJ reportedly 'told regulators that it was concerned, in part, about the deal's impact on potential credit card users who had no credit' and that agency representatives showed concern that the transaction 'would harm competition in the subprime sector.' Warren asserted, in particular, that Discover 'offers interest rates two percentage points lower than Capital One' to borrowers with nonprime credit scores – but that that offer would likely go away once the firms combine. 'Less competition among those with lower credit scores could mean Capital One can raise credit card rates for vulnerable families with limited alternative options, which could be the difference between getting by month-to-month and entering a financial downward spiral,' Warren wrote Tuesday. Warren repeated concerns that, by acquiring Discover, Capital One would carry more than 30% of the nonprime credit score market, driving the Herfindahl-Hirschman Index – a legacy measure of market consolidation – up by roughly 400 points. For new-to-credit customers, she added, the Fed's analysis found 'the post-merger HHI would increase by 766 points to 1971.' The DOJ last year withdrew guidelines that leaned heavily on HHI on the idea that the gauge is outdated. But even using it, a transaction that boosts HHI by 200 points or scores above 1,800 generally has been flagged as anticompetitive. 'A merger that creates a firm with a market share over 30 percent and increases HHI by more than 100 points is presumptively illegal under antitrust law,' Warren reiterated Tuesday. Warren added that DOJ 'has previously been skeptical of deals 'that would enable firms to avoid a regulatory constraint because that constraint was applicable to only one of the merging firms.'' Capital One has said it aims to convert its debit portfolio to Discover networks, Warren asserted. 'The reason is clear: Discover is not only a card issuer but also a card network, which means it is not subject to the limit on debit card interchange fees imposed by the Durbin Amendment to the Dodd-Frank Act,' Warren said. While Capital One, before the merger, wouldn't be able to charge merchants more, Discover can, she said. 'And in case there was any doubt about whether Capital One plans to raise swipe fees, the company told its investors that converting its debit and some credit products to Discover networks would be worth an estimated $1.2 billion,' Warren wrote Tuesday. By moving some of its credit card volume to Discover's network – but not all of it – Capital One would retain the leverage to negotiate interchange fees as a credit card issuer with Discover's largest competitors. Warren labeled that 'a recipe for coordination' among Discover, Visa and Mastercard. 'The solution to an anticompetitive market is not to anoint a new giant, but to fight to level the entire playing field, like the DOJ is doing with its lawsuit against Visa for monopolization,' Warren wrote Tuesday. Warren argued, too, that a Capital One-Discover combination would put a damper on existing innovation. She noted that in the February 2024 call announcing the deal, Capital One CEO Richard Fairbank admitted that his bank's Quicksilver card was a direct response to Discover's It card. 'As Capital One absorbs a major competitor, fewer players in this market could … diminish incentives for remaining firms to offer more generous rewards,' Warren warned.
Yahoo
05-05-2025
- Business
- Yahoo
Warren, Waters urge Fed to reconsider Capital One-Discover
This story was originally published on Banking Dive. To receive daily news and insights, subscribe to our free daily Banking Dive newsletter. Sen. Elizabeth Warren, D-MA, and Rep. Maxine Waters, D-CA, urged the Federal Reserve to reconsider its approval of Capital One's proposed $35.3 billion acquisition of Discover, according to a Thursday letter. The central bank's assessment insufficiently considered the transaction's effects on low-income consumers, competition and financial stability in the U.S., and failed to include relevant information from the Justice Department, Federal Deposit Insurance Corp. and Consumer Financial Protection Bureau, the lawmakers wrote. Warren and Waters cite a Fed board rule under which the seven-governor panel may reconsider an application if it receives a written request to do so from 'any party to such application' within 15 days of a deal's approval. Warren and Waters – the ranking members of Senate Banking Committee and House Financial Services Committee, respectively – assert that because they submitted comments on the application, they qualify as parties. The board may deny reconsideration outright, but the lawmakers are asking that the governors vote on further action – perhaps banking that they break along party lines. The Fed board now has four Democrats and three Republicans. Warren and Waters lambasted the Fed's 'analysis, or lack thereof,' adding that the approval 'displayed a troubling lack of rigor with unsupported conclusions that ran counter to the factual record.' The lawmakers noted that the vast majority (91%) of the more than 6,100 public comments on the application opposed the deal. The Fed, in its order, said many were 'substantially identical form letters that raised concerns related to competition and financial stability generally.' Warren and Waters, however, said the board 'repeatedly parroted assertions made by Capital One in its application, instead of substantively grappling with commenters' analyses and the market realities of the transaction.' The lawmakers argued the Fed unwisely evaluated the competitive effects based on deposit market concentration. 'Treating the transaction as a traditional bank merger was deeply misguided,' Warren and Waters wrote. 'These are not two traditional banks – they are credit card giants. Discover does not even have bank branches.' The Fed's competitive effects analysis did not appear to take credit cards into account, the lawmakers wrote. For customers with no or limited credit history, the Fed found 'the post-merger [Herfindahl-Hirschman Index] would increase by 766 points to 1971 … and Capital One would control 40 percent of this segment,' the lawmakers wrote. The DOJ last year withdrew guidelines leaning heavily on HHI on the idea that the measure is outdated, Warren and Waters noted. But even using them, a transaction that boosts HHI by 200 points or scores above 1,800 generally has been flagged as anticompetitive, the lawmakers wrote. Warren and Waters threw doubt on the Fed's claims that it conducted a high-level analysis of the transaction's impact on credit card consumers. 'Nowhere in any of the competitive effects analyses did the Board even attempt to evaluate whether fees, credit availability, interest rates, or non-price harms like customer service would be impacted by the deal,' the lawmakers wrote. 'The Order reads like the Board had predetermined it was going to approve the transaction and either ignored relevant facts or explained them away with baseless assertions copied and pasted from Capital One's application.' Warren and Waters argued, too, that the Fed's analysis of community benefits 'primarily focused on each bank's past performance under the Community Reinvestment Act' but 'neglected to evaluate how the combined institution would serve communities on a going forward basis.' The central bank also 'ignored the facts outlined in the CFPB's 2025 lawsuit against Capital One for allegedly cheating millions of consumers out of more than $2 billion in interest,' the lawmakers wrote. 'Instead of evaluating the facts outlined in the CFPB's legitimate complaint, the Board buried in a footnote that the CFPB voluntarily dismissed the case (like it tried to dismiss 1,483 of its 1,690 staff),' Warren and Waters wrote in a reference to attempts by Trump-era leadership of the bureau to radically downsize itself. While on the subject of regulators, Warren and Waters noted that the Fed, in its approval order, acknowledged consulting with the FDIC and CFPB. However, 'it is not clear from the Order whether the information and analyses in these formal communications were part of the factual record and presented to the Governors in their review of the transaction,' the lawmakers wrote. They asked that the communications from the FDIC and CFPB to the Fed be made public. The lawmakers also requested that the DOJ's communication to the Fed during the Biden administration be made public. Warren and Waters also asserted the Fed underestimates the effect a Capital One-Discover combination would have on financial stability in the U.S. The resulting $637 billion-asset bank 'would not appear to result in meaningfully greater or more concentrated risks to the stability' of the U.S. financial system, the Fed concluded. Capital One, after the transaction, would be larger than Silicon Valley Bank, Signature and First Republic combined, Warren and Waters noted. 'When SVB acquired Boston Private two years before its failure triggered a banking crisis, the Board similarly concluded that 'this transaction would not appear to result in meaningfully greater or more concentrated risks to the stability of the U.S. banking or financial system,'' the lawmakers wrote. However, they fault the Fed for relying 'heavily on 'global' metrics of systemic risk,' rather than focusing on the U.S. 'Under this misapplied analytical approach,' the Capital One-Discover deal would be 'well below' the global systemically important threshold but 'would have a systemic risk score double SVB's,' Warren and Waters wrote. The lawmakers also asked that the Fed reevaluate the competitive effects of the deal using data from the first quarter of 2025, rather than mid-2024 or late 2023 – and that the central bank incorporate large-bank credit card and mortgage data recently published by the Philadelphia Fed. Further, Warren and Waters repeated, as a concern, recent efforts to drastically downsize the CFPB. 'The [Fed] cannot force the CFPB's Acting Director to run the agency lawfully, but it certainly can refrain from creating the largest credit company in the country at a time of massive uncertainty regarding the CFPB,' the lawmakers wrote. Warren and Waters also noted the Department of Government Efficiency's incursion at the FDIC as a development after the Fed considered the Capital One-Discover deal. 'Keeping Capital One and Discover separate makes them easier to resolve and somewhat mitigates the impact of the degradation of the FDIC's resolution capacity,' the lawmakers wrote.
