You want to start a company, and are trying to decide between two different industries. You are doing your final research before you write your business plan.

Industry A has 20 firms and a Concentration Ratio (CR) of 20%

* What is the name for this type of industry?
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Describe some of this industry's characteristics.
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If you were in this industry and there was an increased demand for the product that pushed up the price of goods, what long-run adjustments would you expect?
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What does your anticipated adjustment process imply about the CR for the industry?

Industry B has 20 firms and a Concentration Ratio (CR) of 85%.

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What is the name for this type of industry?
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Describe some of this industry's characteristics.
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What are some reasons why this industry has a high CR while Industry A had a low CR?
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Is it possible for smaller firms to thrive and profit in Industry B? Why or why not?

Industry A, with 20 firms and a Concentration Ratio (CR) of 20%, is commonly known as a "Fragmented Industry."

Characteristics of a Fragmented Industry:
1. Large number of firms: In a fragmented industry, there are many competitors with no significant market share.
2. Low level of market concentration: The market share of each individual firm is relatively small.
3. Low barriers to entry: It is relatively easy for new firms to enter the industry due to low barriers such as low capital requirements and easy access to resources.
4. Limited market power: No single firm has enough market power to influence the market conditions or price of goods significantly.
5. High competition: With numerous competitors, firms in a fragmented industry often engage in fierce competition for market share.

If Industry A experienced an increased demand for its product that pushed up the price of goods, the long-run adjustments that could be expected are as follows:
1. New firms entering the industry: The higher prices would attract new firms to enter the market, aiming to take advantage of the increased profitability.
2. Expansion of existing firms: The existing firms in the industry would likely expand their production facilities or invest in increasing their capacity to meet the increased demand.
3. Market consolidation: Over time, as new firms enter and existing firms expand, the industry could undergo consolidation through mergers and acquisitions, leading to fewer but larger firms.
4. Potential increase in market concentration: Due to market consolidation, the Concentration Ratio (CR) for the industry may increase over time.

Industry B, with 20 firms and a Concentration Ratio (CR) of 85%, is known as an "Oligopolistic Industry."

Characteristics of an Oligopolistic Industry:
1. Small number of dominant firms: In an oligopolistic industry, a few large firms hold a significant market share.
2. High barriers to entry: Oligopolistic industries often have high entry barriers, such as high capital requirements, exclusive access to resources, or strong brand loyalty, making it difficult for new firms to enter and compete.
3. Market interdependence: The actions and decisions of one firm in the industry can significantly impact the other firms due to the relatively small number of competitors.
4. Possibility of collusion: Oligopolistic firms may engage in collusion or tacit cooperation to control prices and competition, though this is often regulated by antitrust laws.
5. Non-homogeneous products: The products or services offered by the firms in an oligopolistic industry are typically differentiated to some extent, providing a basis for product differentiation and market segmentation.

Reasons why Industry B has a high CR while Industry A has a low CR:
1. Higher barriers to entry: The high concentration in Industry B can be attributed to the presence of significant barriers to entry, such as high capital requirements or exclusive access to resources, which deter new firms from entering the market.
2. Market power: The dominant firms in Industry B may have considerable market power, enabling them to control prices, negotiate with suppliers, and outcompete smaller firms.
3. Brand loyalty: Oligopolistic industries often have strong brand loyalty or customer preferences that make it difficult for new entrants to attract customers away from established firms.

In Industry B, it is still possible for smaller firms to thrive and profit, but it may be more challenging due to the dominance of larger firms. Some possible reasons are:
1. Niche markets: Smaller firms can focus on specialized niche markets within the industry where they can differentiate themselves and cater to a specific target market.
2. Innovation and differentiation: Smaller firms can develop innovative products or services, offering unique features or benefits that attract customers and compete effectively with larger firms.
3. Agility and flexibility: Smaller firms may have the advantage of being more agile and adaptable, allowing them to respond quickly to changing market conditions and customer demands.

However, smaller firms in a highly concentrated industry face more significant challenges in terms of market power, resources, and competition from larger firms. They may need to find innovative strategies, partnerships, or niche markets to establish a competitive advantage and thrive in Industry B.