HE 4 : market concentration and market power -Karteikarten | Quizlet

What is a market / industry ?

Firms producing or selling homogeneous or similar products to certain consumers.

Product boundaries and market share ?

As more substitues appear on the market, the relative market share of the leading producers decreases

What is market structure ?

Theoretical and qualitative assessment of the extent to which firms compete with each other in a market or industry

Firms number is not a good measure

Types of market structures ?

• Perfect competition: competition between firms is extremely intensified

• Monopolistic competition: competition between firms is very high, but not as strong as in perfect competition

• Oligopoly: competition between firms is less intensified, in general

• Monopoly: no competition at all

What is market concentration ?

Proportion of the market controlled by a firm/company

2 elements to measure market concentration ?

- The number of firms

- Their relative market share

Market concentration ratio (CR) ?

Computed by aggregating the market shares of a certain number of the most dominant firms in an industry

CR^4 is the most common one

What does a CR of 0 means ?

That there is a lot of firms and they have a small share of the market, meaning that we might be in perfect competition

The greater the CR the more concentrated

What is the Herfindahl-Hirschman Index ?

Computed by aggregating the market share of each firm squared in the industry

The higher the less competitive (more concentrated)

HHI rankings ?

• HHI < 1,500: weakly concentrated markets

• 1,500 ≤ HHI ≤ 2,500: moderately concentrated markets

• HHI > 2,500: highly concentrated markets.

CR4 and HHI ?

the more the firms in an industry, the less concentrated the industry, because both indices will decrease as firm number increases

If size distribution is uneven ?

Use HHI instead of CR4 as it might not reflect the true market concentration

What are CR4 and HHI ?

Post hoc assessment, calculations based on historical data

Changes over time (supply / demand varies)

What is demand sustainability ?

Extent to which consumers are able and willing to substitute one good for another in their consumption.

What is supply sustainability ?

Substitute the production of one good for the production of another

Extent to which firms are willing and able to substitute the production between two or more goods