posted by CAM
Suppose you have an industry with 20 firms and the CR is 30%. How would you describe this industry?Suppose the demand for product rises and pushes up the price for the good. What long run adjustments would you expect following this change in demand? What des your adjustment process imply about the CR for the industry?
Now consider that the industry has 20 firms but the CR is 80% instead of 30% How would describe this industry? What are some reaons why this industry has a high CR while the other industry had a low CR? Is it possible for smaller firms to thrive and profit in such and industry? How? Contrast the effects on market efficiency if the dominating firms use a price leadership model versus a contestable markets model. Be sure to show your work.
I or others will gladly critique your answer.
With a concentration ration of 30% which is squared to equal 900. According to the guidelines established by the U.S. Department of Justice in 1992, the market is “unconcentrated”.
What the four firm concentration ratio tells you is how much market share the top four firms in a particular industry have. In other words, it says how much of the total business is taken up by the top four producers. In the first part, the industry with the CR of 30% means that the market is largely fragmented. There are many competitors, and no competitor appears to have a dominant position in the market. This industry could be the agricultural industry, in which there are alot of suppliers, but no major player that can manipulate the market.
Thus, this market is probably a perfect competition model, and the firms are price takers, meaning that consumers have the power, as if one firm raises prices, the consumer can go to another firm. It also indicates that there are relatively few barriers to entry. Thus, if demand increases, new firms will likely enter into the market.
In the second, the CR has increased to 80%, indicating that the top four firms have 80% of the business. Thus, this is probably more like an oligopoly. These firms have a bit of pricing power, as there aren't too many other competitors whom the consumer can turn to if the prices are raised. This is more of a specialized industry. One that might fall into this is software, with a dominating Microsoft controlling a large portion of it, or oil, with OPEC controlling the large majority of the available oil.
Degree in economics