Limitations Of Concentration Measures

Question 1

What are the limitations of concentration methods?

Answer 1

1. Foreign production
2. Ease of entry
3. Elasticity of demand
4. Imprecise definitions

Question 2

How is foreign production a limitation of concentration measures?

Answer 2

The concentration measures fully incorporate the revenue of the domestic industry because of their major concentration, while neglecting the impact of foreign goods on competition and therefore the impact of foreign companies.

Question 3

How is the ease of entry one of the limitations of concentration measures?

Answer 3

With many participants in the industry owing to free barriers to entry the power of the current suppliers will be overstated.

Concentration measures like the Herfindahl-Hirschman Index (HHI) or the Concentration Ratio (CR) are snapshots of market concentration at a specific point in time. If an industry has low barriers to entry, new firms can easily enter the market, potentially diluting the concentration levels. This means that concentration measures may not accurately represent the long-term competitive dynamics of the industry.

Question 4

How Come, Elasticity of demand a limitation to concentration measures?

Answer 4

1. Market concentration measures can indicate the degree of market power held by a small number of firms. In highly concentrated markets, firms may have more pricing power, which can influence the elasticity of demand. When firms have significant market power, they may be able to raise prices without losing many customers, resulting in a less elastic demand curve.
2. In concentrated markets, the cross-elasticity of demand, which measures how the quantity demanded of one product responds to changes in the price of another related product, can also be influenced. Firms with market power may use their dominance to affect the pricing of substitute goods, affecting cross-elasticity.

Question 5

How come imprecise definition another limitation of concentration measures?

Answer 5

1. Sometimes a narrowly define industry appears to be more concentrated than a broadly defined one.
2. Eg : shoe industry has further breakdown into
   • “athletics shoes”
   • “men shoes”
   • “children shoes”
   and therefore the market simply should not be for “shoes”

Question 6

What is coordinating economic activity?

Answer 6

1. Economic activity can be coordinated by markets or individual firms.
2. A firm organises input production factors in order to produce or market goods &/or services.

Question 7

Give an example of how firms coordinate an economic activity?

Answer 7

1. Auto manufacturers or the assemblers of cars are the major example of market coordination as they assemble car components produced by hundreds of components suppliers.
2. Many at times , a firm may coordinate a particular type of economic activity more efficiently than the market itself.
3. Such as if General Motors decides to coordinate all the economic activity related to the brake component then the economic coordination is done by the General Motors.

Question 8

What are the benefits of Coordinating Economic Activity?

Answer 8

1. Economies of Scope
2. Economies of Scale

Question 9

How can the economies of scope enable firms in well coordination of economic activity in comparison to markets?

Answer 9

1. When the a firm hires specialized resources to produce a broad range of goods and services.
2. For eg
   a person with a disease who can be diagnosed only in a hospital with wide range of medical specialties and other medical equipments should be certainly sent there.

Question 10

How does economies of scale help in making firms more efficient than the markets?

Answer 10

1.With large no of output being produced for various kinds of goods , per unit production costs decline.
2.Team productions often lower production costs.
3. Transactions costs are often reduced with coordinated economic activity of the firm.
4. Eg. The coordinated efforts of a contractor will
• reduce the cost of hiring sub contractors,
•hiring plumbers and carpenters, •finding suitable building materials, •arranging for the delivery of materials etc

Question 11

What is sellers concentration?

Answer 11

The no. of sellers in an industry together with their comparative shares of industry sale.

Question 12

What is atomistic competition and where does it persist?

Answer 12

1. When the no. Of sellers is quite large
2. The share of each seller is too small to affect or influence the market share and income of other sellers by changing his selling price or output.

Question 13

What is the concept of sellers concentration with reference to oligopoly?

Answer 13

1. In oligopoly there are a few sellers.
2. Hence, the market share of every single seller is quite large.
3. This makes clear that a small change in the price and output by one seller will affect the income or the market shares of rival sellers, making them react to change accordingly.

Question 14

Can oligopoly exist with few small sellers as well?

Answer 14

Yes, when there are some sellers in the industry with larger shares of the market even with the alongside existence of few small sellers, oligopoly exists.

Question 15

When does single firm monopoly exists?

Answer 15

1. Single seller supplying the entire output of an industry.
2. Determines the selling price and the output without any concern for the rival seller’s reactions.