SV matrix

STRENGTH/VARIETY

The SV Matrix is used to assess the level of dominance in industries and markets and allows companies to choose optimal competitive strategies and regulators to choose the right interventions. According to the theory of economic dominance, we will call the dominant group of companies in the market alpha companies.

The SV Matrix includes only those markets or industries with identified group dominance. To determine the size of the dominant group, we can use the Lind Index (L). It is important to note that the results obtained using the Lind Index should be checked by experts, since there may be inaccuracies in the initial data, and also, in some cases, alpha companies do not occupy the largest market share due to various circumstances and cannot be identified using only mathematical tools (see the example of the express logistics market (Manchenko, 2020) or the online education market (Suslova, Govorova and Shchelokova, 2021)). All links to the cited articles are available at «Publications» section.

For all the markets where the presence and size of the dominant group are determined, two indicators are calculated:

СRSV is the total market share occupied by the group of dominant companies in a particular market, that is, the standard concentration ratio (CRn) for a group of n dominant companies in a particular market, where n is determined with the Lind Index (or expert method).
HTSV is a modified Hall-Tideman Index (HT) reflecting the differentiation within the dominant group. The more companies differ within the dominant group, the higher will be the HTSV.

For more information on calculating the L, CRSV, and HTSV indices, see the "Tools" section.

The SV matrix is a graph where:

on a horizontal scale, CRSV is postponed, the minimum value of the scale is 30% (if alpha companies collectively occupy less than 30% of the market, then it is considered that there is no need to talk about their dominance), and the maximum is 100%;
HTSV is plotted on the vertical scale, which varies in the range [0;1], and the scale itself is logarithmic to base 10, so the average value of the scale is achieved at HTSV equal to 0.1.

Visually, the SV matrix is divided into 4 quadrants:

G - dominant super-alpha, right upper quadrant, CRSV> 65%, HTSV> 0.1. This quadrant includes industries or markets where alpha companies have a consolidated share of more than 65% of the market, but they are very different from each other in size. The name of the matrix comes from Gazprom, which has a similarly dominant position in the Russian gas production market and many other markets.
B4 - natural oligopoly, right lower quadrant, CRSV> 65%, HTSV <0.1. In this quadrant, alpha companies (as at G) consolidate the largest market share, but the sizes of all alphas are approximately equal. The quadrant is called a natural oligopoly, so in such situations, it is beneficial for alphas to keep the defense against all other companies in the market, not allowing anyone to enter the market. Such natural oligopolies can be found in the Russian markets for telecommunications, professional services, communal services, etc. The most famous natural oligopoly is the "Big Four" in the audit market.
RO - Red Ocean, lower left quadrant, CRSV <65%, HTSV <0.1. If the market appears at this quadrant, it means that alpha companies are comparable in strength, but so far they occupy 30-65% of the market. As a rule, they actively compete both among themselves and with beta and gamma companies. If, as a result of market changes (for example, a crisis, when medium and small companies leave the market), the share of alpha companies grows, then the market may move to the B4 quadrant - a natural oligopoly. If, as a result of competition, one or more alphas capture the market share of other alphas, then the market moves to the upper left quadrant "I".
I - low or natural barriers, left upper quadrant, CRSV <65%, HTSV> 0.1. The market will appear here if it is dominated by alpha companies of different sizes, and they occupy together from 30 to 65% of the market. The reasons for entering this quadrant are very diverse. Sometimes these are markets with no entry barriers, so there is a constant influx of new players, the dominant alpha companies cannot increase their cumulative market share and are constantly competing with each other. Or, on the contrary, here we can find industries, which are geographically close to natural monopolies in their geographic regions, but from the point of view of dominance, larger alphas may appear through mergers and acquisitions of the corresponding assets to increase the power of the alpha company.

The limitation of the SV Matrix is a market situation with the only alpha company. This is due to the fact that (1) due to its specificity, the Lind Index cannot identify this company, and (2) HTSV for one company will be equal to 1. In connection with the above, such cases require an individual expert assessment.