How forming joint ventures may affect market concentration in construction industry?

The construction activities in Hong Kong are at unprecedented high level since the launching of an ambitious infrastructural development programme that involves the construction of ten mega projects (TMP hereafter). Since the commencement of the programme in 2008, the tenders returned for these projects have exceeded the respective project budgets significantly and far beyond the inflation factor. Major concerns have, therefore, been raised over if there is an issue of insufficient competition. Concentrated market is considered less competitive and can be futile ground for bid manipulation. This study employs the contract values of the TMP to calculate concentration measures including four-firm concentration ratios and Herfindahl–Hirschman Index. Furthermore, contractors are categorized into active and occasional group. The effects of forming joint ventures (JVs hereafter) on these two groups are examined. The findings are as follows. For active contractors, due to the network among them, forming JVs lowers market concentration. For occasional contractors, forming JVs increases market concentration. It is suggested that for projects of lower technical complexity and value, project segmentation would enhance market competition.