Concentration Levels in the U.S. Advertising and Marketing Services Industry: Myth vs. Reality
Executive Summary — How concentrated is the U.S. advertising and marketing services industry? Over the past several decades, the effects of deregulation, globalization, and technological innovation have reshaped the advertising and marketing services industry as they worked their way through the economy. Estimates from the existing literature are typically based on data from trade sources and present a picture that emphasizes rising concentration over time and domination by a handful of holding companies. These estimates are suspect as they suffer from a number of conceptual and measurement limitations. This paper analyzes changes in concentration levels in the U.S. advertising and marketing services industry, using data that have been largely ignored in past discussions of the economic organization of the industry. Key concepts include:
- Concentration levels vary across the advertising and marketing service industry's nine sectors, but all are within the range generally considered indicative of a competitive industry.
- From 1977 to 1992, census data show that the number of firms and establishments and the level of agency receipts in real terms increased.
- After 1992, however, the number of firms and establishments decreased while real agency receipts have continued to grow, and concentration levels have tended to increase.
- Between 2002 and 2006, the four largest holding companies captured a fifth to a fourth of the total U.S. revenue flowing to suppliers of advertising and marketing services each year.
- After several waves of mergers and acquisitions, the collective position of the major holding companies in the United States is considerably less than dominant.
This paper analyzes changes in concentration levels in the U.S. Advertising and Marketing Services (A&MS) industry using publicly released data that have been largely ignored in past discussions of the industrial organization of this industry, namely those available from the U.S. Census Bureau's quinquennial Economic Census and the Service Annual Survey. We define the A&MS industry in terms of nine sectors, each of which is represented by a separate 5 digit NAICS category. In so doing, we have sought to redress some of the measurement problems surrounding estimates found in the existing literature.
- Full Working Paper Text
- Working Paper Publication Date: September 2008
- HBS Working Paper Number: 09-044