Introduction Flashcards
What does one mean by industry concentration?
- Its an economic measurement.
- It measures the market share of different companies operating within an industry.
- Hierarchy of companies dominating from top
middle
&, bottom - The top most companies are the major players with unchanged position.
- The newer companies are fragmented before reaching the top level like the top notch rivals
- It is this share of market divided between companies in an industry that determines - “ Industry Concentration “.
What is a highly concentrated industry?
With only a few companies dominating the majority of the market.
What is meant by low concentration?
An industry with a large number of companies with severe small percentage share of each of these throughout the market
Definition of Industrial concentration
A structural characteristic of the business sector where the degree of production in an industry or the economy as a whole is dominated by a few larger firms.
How is the concept of industry concentration helpful to investors?
It allows the investors in making their investment decisions in highly concentrated industry.
Difference in the perception of Industrial Concentration?
Earlier it was simply a symptom of - “market failure “ . However, now it is “an indicator of high economic performance”.
What is “a revolution in Economics”
The concept of industry concentration is considered by Yale Brozen as the “ Revolution in Economics “
Which segments understand the importance of industry concentration ?
- The investors
- Business strategists
- Government for making public policies
- Economists
What are the 2 methods of measuring industry concentration?
- Concentration Ratio
- Herfindahl - Hirschman Index
What is Concentration Ratio?
The Concentration Ratio or CR is the
% of the market share of the m largest firms in the industry.
m = < 4 >
How is the CR expressed?
The CR is expressed as
CRm = s1+s2+….. si
Here s = the market share
i = the ‘i’ th firm
How does the CR indicate a highly competitive industry?
When m = 0, then the percentage of the market share of each firm is quite significant.
Explain the perfect competition and the monopoly with the help of CR?
With m = 1, enjoying 90% share of the market is monopoly
With m = 4 , with less than 40% share in the market is perfect competition.
Drawbacks of CR
The value of the CR will not change even with the change in the market share among the different largest m firms included in the ratio.
What is the range of the concentration ratio?
(0-100) %
