Spanish market competition stable despite rising concentration

The analysis, using microdata from the Banco de España Central Balance Sheet Data Office for 2004-2023, documents a slight increase in market concentration indices.

This rise is primarily observed in sectors that compete more intensively at the international level, suggesting that national-level competition may not be broadly affected.

Aggregate firm entry and exit rates exhibited cyclical fluctuations, notably during the financial crisis and the pandemic, but no persistent changes indicating a general increase in entry barriers were found.

Markups, defined as the difference between price and marginal cost, increased significantly over the period, a pattern also seen in the United States.

However, this increase in Spain was more pronounced among smaller firms and during crisis periods, hinting at factors beyond just a decline in competition.

Unlike the US, this rise in markups did not translate into higher aggregate corporate profits, which remain below 2004-2007 levels.

The study contributes to the ongoing debate on market power, which is more developed in the US, where studies often point to weakening competition through rising markups, profits, and concentration, alongside declining business dynamism.

In contrast, the European consensus is less clear.

While some European Commission studies suggest rising concentration and lower dynamism in the EU, other research, including some for Spain, France, Germany, and Italy, finds no significant changes in concentration, markups, or entry/exit rates.

This paper's findings for Spain, showing mixed signals and significant changes in firms' cost structures, particularly for smaller enterprises, align with the more nuanced view of European market dynamics, contrasting with the broader trends observed in the US economy.