Introduction

Market concentration is a crucial concept in market regulation, helping to assess the competitive
landscape within different sectors. It is particularly important when making decisions on
potential mergers and acquisitions, as well as in evaluating market practices such as collusion
and price fixing. Two commonly used measures of market concentration are the Concentration
Ratio (CR) and the Hirschman-Herfindahl Index (HHI). These metrics provide insights into the
distribution of market share among firms and the overall level of competition.

Derivation of the Concentration Ratio and Hirschman-Herfindahl Index

1. Concentration Ratio (CR)

The Concentration Ratio (CR) measures the market share of the largest firms in the market. It is
usually expressed as CR4, CR3, etc., where the subscript indicates the number of firms
considered. For instance, CR4 represents the market share of the four largest firms.

Mobile Network Operators (MNOs) in Zambia

Assume the market shares of the top four MNOs in Zambia are as follows:

 MTN Zambia: 45%

 Airtel Zambia: 35%

 Zamtel: 15%

 Vodafone Zambia: 5%

The CR4 is calculated as the sum of the market shares of these four largest firms: CR4=45%
+35%+15%+5%=100%

This indicates that the top four firms control the entire market, suggesting a highly concentrated
market.

Tertiary Education Sector in Zambia

Assume the market shares of the top four tertiary education institutions (based on student
enrollments or another relevant metric) are:

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  University of Zambia (UNZA): 30%

 Copperbelt University (CBU): 25%

 Mulungushi University: 15%

 Zambia Open University: 10%

The CR4 is: CR4=30%+25%+15%+10%=80%

This indicates that the top four institutions control 80% of the market, suggesting a moderately
concentrated market.

2. Hirschman-Herfindahl Index (HHI)

The HHI is calculated by squaring the market share of each firm in the market and then summing
these squares. It provides a more comprehensive measure of market concentration because it
considers the market share distribution across all firms.

Mobile Network Operators (MNOs) in Zambia

Using the same market shares: HHI=452+352+152+52

HHI=2025+1225+225+25

HHI=3500

An HHI below 1500 indicates a competitive marketplace, 1500-2500 suggests moderate

concentration, and above 2500 indicates high concentration. An HHI of 3500 implies a highly
concentrated market for MNOs in Zambia.

Tertiary Education Sector in Zambia

Using the same market shares: HHI=302+252+152+102

HHI=900+625+225+100

HHI=1850

An HHI of 1850 suggests moderate concentration in the tertiary education sector in Zambia.

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Discussion

Mobile Network Operators (MNOs) in Zambia

The mobile network operator (MNO) market in Zambia is characterized by a high level of
concentration, as indicated by both the Concentration Ratio (CR4) and the Hirschman-Herfindahl
Index (HHI). A high concentration ratio is a clear indication of an oligopolistic market structure,
where a few firms hold significant market power. An HHI exceeding 2500 is typically
considered indicative of a highly concentrated market, as per the U.S. Department of Justice
guidelines (2010). Comparatively, an HHI below 1500 suggests a competitive market, and a
range between 1500 and 2500 indicates moderate concentration. Therefore, an HHI of 3500
underscores not only the dominance of the leading firms but also a significant lack of
competitive pressure within the market.

Implications of High Market Concentration

Reduced Competition

One of the primary consequences of such high market concentration is reduced competition. In a
market where a small number of firms control the majority of market share, there is less
incentive for these firms to engage in competitive behaviors such as price reductions or service
improvements. Instead, these firms might focus on maintaining their market positions and
profitability through higher prices. This can lead to a market environment where consumer
choice is limited, and prices remain elevated, as consumers have few alternatives. Bain’s (1951)
seminal work highlights that industries with high concentration ratios tend to exhibit higher
prices and lower output levels compared to more competitive markets.

Risk of Collusion

Another significant risk in a highly concentrated market is the potential for collusion among the
dominant firms. Collusion can manifest explicitly, through formal agreements to fix prices or
divide markets, or tacitly, where firms implicitly understand and follow coordinated strategies to
avoid competitive pressures. Economic theory suggests that the propensity for collusion
increases as markets become more concentrated because it becomes easier for firms to monitor
each other’s actions and punish deviations from collusive agreements (Tirole, 1988). In the

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context of Zambia’s MNO market, the high CR4 and HHI values suggest that the market is
particularly vulnerable to such anti-competitive behaviors, which can further harm consumer
interests by maintaining high prices and stifling competition.

Stifled Innovation

High market concentration can also stifle innovation. In competitive markets, firms are driven to
innovate as a means to attract customers and increase their market share. This drive leads to
technological advancements and improvements in service quality. However, in a market where
dominant firms do not face significant competitive threats, the incentive to innovate diminishes.
These firms may become complacent, relying on their established market positions rather than
investing in new technologies or improving services. This dynamic can result in slower
technological progress and a reduction in service quality, ultimately harming consumers who are
denied the benefits of innovation (Aghion et al., 2005).

Regulatory Oversight and Recommendations

Given these potential negative outcomes, it is imperative for regulatory bodies in Zambia to
closely monitor the MNO market. Regulatory authorities must ensure that the dominant firms do
not engage in anti-competitive practices that could harm consumers. This oversight might
involve several strategies:

1. Scrutinizing Mergers and Acquisitions: Regulatory bodies should carefully evaluate

any proposed mergers or acquisitions involving MNOs. Such transactions could further
increase market concentration, exacerbating the risks of reduced competition and
collusion. By scrutinizing these deals, regulators can prevent the market from becoming
even more concentrated.

2. Investigating Collusion: Regulators should remain vigilant for signs of collusion among
the dominant firms. This might involve monitoring pricing patterns, market behaviors,
and communication between firms. Any evidence of collusive behavior should be met
with strict enforcement actions to deter anti-competitive practices.

3. Encouraging New Entrants: Promoting policies that facilitate the entry of new
competitors into the MNO market can help increase competition. This might include

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 reducing regulatory barriers, providing incentives for new entrants, or supporting smaller
firms to expand their operations. Increased competition can lead to lower prices,
improved services, and greater innovation, benefiting consumers.

4. Promoting Technological Innovation: Regulators can also play a role in promoting

technological innovation within the MNO market. This might involve supporting
research and development initiatives, providing grants or tax incentives for innovation, or
fostering partnerships between firms and research institutions. By encouraging
innovation, regulators can help ensure that consumers benefit from the latest
technological advancements and improved service quality.

Tertiary Education Sector in Zambia

The tertiary education sector in Zambia, while not as highly concentrated as the mobile network
operator (MNO) market, exhibits moderate concentration as indicated by a CR4 of 80% and an
HHI of 1850. This level of concentration highlights the dominance of a few key institutions, yet
it also suggests that there is still room for competition and growth. An HHI between 1500 and
2500 indicates moderate concentration. Therefore, an HHI of 1850 underscores that while a few
institutions dominate, there is a balanced distribution of market power that still allows for
competitive dynamics.

Implications of Moderate Market Concentration

Encouraging Competition

In a moderately concentrated market, competition among higher education institutions is crucial

for driving quality improvements, innovation, and accessibility. When institutions compete, they
are incentivized to enhance their academic offerings, invest in faculty development, and improve
campus facilities to attract students. This competitive drive can lead to higher educational
standards and better learning environments. Research indicates that competition among
educational institutions can result in significant gains in teaching quality and student outcomes
(Belfield & Levin, 2002).

Enhancing Accessibility

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Moderate concentration in the tertiary education sector also underscores the need to enhance
accessibility. Institutions should strive to provide affordable education to a broader segment of
the population. This involves not only reducing tuition fees but also offering scholarships,
financial aid, and flexible payment plans. By doing so, institutions can attract a diverse student
body, including those from underprivileged backgrounds. Greater accessibility ensures that more
individuals have the opportunity to benefit from higher education, thereby contributing to
national development goals.

Promoting Affordability

Affordability is a key factor in making higher education accessible. In a moderately concentrated

market, institutions might be tempted to maintain higher tuition fees due to less competitive
pressure compared to a highly competitive market. Regulatory bodies should encourage policies
that promote affordability. This might include capping tuition fee increases, offering government
subsidies, and incentivizing institutions to find cost-effective ways to deliver quality education.
Studies have shown that tuition fees can be a significant barrier to higher education access, and
policies aimed at reducing these costs can have a substantial positive impact (Heller, 1997).

Regulatory Frameworks and Recommendations

1. Ensuring Fair Access to Resources: Regulatory frameworks play a critical role in

ensuring fair access to resources and opportunities within the tertiary education sector.
This involves equitable distribution of government funding, grants, and research
opportunities among institutions. Ensuring that newer or smaller institutions have access
to these resources can help level the playing field and promote a more competitive
environment. Equitable resource allocation can support the development of emerging
institutions, thereby enhancing the overall quality and diversity of the tertiary education
sector (Marginson, 2007).
2. Supporting New Institutions: Promoting the entry of new institutions into the market is
another important aspect of regulatory oversight. New institutions can introduce
innovative educational models, increase capacity, and enhance competition. Regulatory
bodies should create an enabling environment that supports the establishment and growth
of new higher education providers. This might involve simplifying the accreditation
process, providing start-up funding, and offering mentorship programs from established

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 institutions. Encouraging new entrants can invigorate the market and provide students
with a wider array of educational choices (Huisman, 1995).
3. Encouraging Quality and Innovation: Regulators should also focus on promoting
quality and innovation within the tertiary education sector. This involves setting rigorous
academic standards, supporting continuous improvement initiatives, and encouraging
institutions to adopt cutting-edge educational technologies. By fostering a culture of
excellence and innovation, regulatory frameworks can help ensure that higher education
institutions not only meet but exceed national and international benchmarks. Quality
assurance mechanisms, such as regular assessments and accreditations, can play a pivotal
role in maintaining high standards (Harvey & Green, 1993).

Conclusion

Market concentration, a measure of the extent to which a small number of firms dominate an
industry, is crucial in assessing competition and potential market power abuses. The
Concentration Ratio (CR4) and the Hirschman-Herfindahl Index (HHI) are the two primary
measures of market concentration. The CR4 sums the market shares of the four largest firms in
an industry, while the HHI squares the market shares of all firms and sums them, providing a
more detailed view of market distribution. In Zambia, the mobile network operator (MNO)
market exhibits high concentration, with a CR4 of 100% and an HHI of 3500, indicating a near-
oligopoly. This concentration can lead to reduced competition, higher prices, and stifled
innovation, necessitating strong regulatory oversight to protect consumer interests. Conversely,
the tertiary education sector shows moderate concentration, with a CR4 of 80% and an HHI of
1850. While this allows for some competitive dynamics, regulatory frameworks are still needed
to ensure fair resource distribution, support new entrants, and promote quality and innovation.
Overall, understanding market concentration through these measures is vital for regulators to
foster competitive, fair, and dynamic market environments that benefit consumers and stimulate
economic growth.

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Belfield, C. R., & Levin, H. M. (2002). The Effects of Competition between Schools on
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