Concentration in the UK construction sector

Abstract

Purpose

The purpose of this paper is to analyze the competition in the UK construction industry and the key sectors that supply it, thereby identifying the degree of industrial concentration affecting the construction product.

Design/methodology/approach

The research is based on Official Statistics giving details of the concentration ratios of 127 industrial sectors in the UK. The quantitative information on concentration is backed up by qualitative data from reports by the Competition Commission and its predecessors plus enquiries from the Office of Fair Trading. This is used to grade each industry and weight the key inputs by their relative importance to obtain an overall picture of competition in construction.

Findings

The paper concludes that construction is one of the most competitive sectors in the economy and its input structure is also amongst the least concentrated. This is measured by taking the industrial sectors that supply construction and weighting them in terms of their contribution.

Research limitations/implications

The data used are not totally comprehensive as certain information is withheld because of commercial confidentiality. The sectors concerned, including banking and real estate, might warrant further investigation.

Practical implications

The implications are that construction remains a highly competitive sector and there is little to be gained by regulation other than the work currently being undertaken on collusion in bidding, and on mergers and acquisitions. The key point is to ensure that competitive bidding is free from collusion.

Originality/value

The paper goes beyond most of the existing research in challenging the conventional view that construction has a highly concentrated input structure.

Citation

Lowe, J. (2011), "Concentration in the UK construction sector", Journal of Financial Management of Property and Construction, Vol. 16 No. 3, pp. 232-248. https://doi.org/10.1108/13664381111179215