11: Imperfect Competition

Composition of the Canadian economy: many more small businesses as opposed to large businesses. Over 4.2 million small businesses over $30K earnings. Only 1.3 million have employees.

• SME: small-medium enterprises. 1 - 200 employees.

NAICS: North American Industrial Classification System — split up into sectors. Sample financial statements.

Concentration Ratio: fraction of total market activity controlled by a specified number of the industry’s largest firms. Herfindahal Index: higher values indicate greater concentration.

• Calculated as company sales / industry sales.

• Also known as the summation of the market share squared.

Competition bureau steps in to target anti-competitive behaviour.

Monopolistic Competition: an industry with the same characteristics as perfect competition, except they sell differentiated products.

• e.g. toothpaste, fast food, breweries

Assumptions

• Price setter

• Differentiated product

• Small output relative to industry output

  • Toothpaste with sparkles vs the whole toothpaste market.

• Freedom of entry and exit.