Concentration Ratios Essay Example
Concentration Ratios Essay Example

Concentration Ratios Essay Example

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The study aims to classify industries as oligopolies or monopolies using concentration ratios. It evaluates the computation of total market shares in four industries and assesses the level of competition within them. Additionally, it examines the societal advantages that result from oligopolistic markets according to Case, Fare, and Oster (2009). A concentration ratio indicates the proportion of industry output controlled by dominant firms in terms of sales or employment.

The purpose of four-firm concentration ratios is to gauge the collective production of a specific number of firms in an industry. These ratios quantify the overall market share held by the four largest firms. The following industries will be analyzed: fluid milk manufacturing, women’s and girls’ cut and sew dress manufacturing, envelopes, and electronic computer manufacturing. Four-firm concentration ratios can span from 0% to 100%.

Monopolistic c


ompetition occurs when the concentration ratio is 0%. When the concentration ratio ranges from 0-50%, it can be considered perfect competition to oligopoly. A range of 50-80% is likely an oligopoly, while a range of 80-100% can range from oligopoly to monopoly. A concentration ratio of 100% indicates a monopoly. The level of competition can be determined by these concentration ranges. For fluid milk manufacturing, the four-firm concentration ratio was 42.6%.

This indicates that the industry has a low concentration range, implying a high level of competition and lack of significant market share for any single manufacturer. Specifically, the four-firm concentration ratio for cut and sew dress manufacturing for women and girls is 21.6%, while for the envelopes industry it is 51%. These percentages further reinforce the notion of intense competition within these industries.

1%. The level of concentration in this industry

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ranges from 50-80%, which encompasses perfect competition to oligopoly. In my view, competition within this industry is high.

Finally, the four-firm concentration ratio for electronic computer manufacturing is 75.5%, which also falls in the medium level of concentration. The closer the four-firm concentration percentage is to 80%, the closer this firm is to an oligopoly, and the least amount of competition there is within the industry. Oligopoly is an industry characterized by a few dominant firms and products produced may be homogenous or differentiated (Case, Fare, and Oster 2009). In this type of industry, there are high barriers for entry and limited price competition.

According to the United States Census Bureau in 2002, electronic computer manufacturing is the industry that most closely resembles an oligopoly. There are currently 465 companies operating within this industry, with a four-firm concentration ratio of 75.5%. The major players in this sector include Hewlett-Packard, Acer, Dell, Apple, and Lenovo. Among these multinational computer manufacturers, Hewlett-Packard, Apple, and Dell are based in the United States while Acer is based in Taiwan and Lenovo is based in China.

By capitalizing on economies of scale, oligopolies can benefit societies. This is evident in the mass production of computers by HP, Acer, Apple, Dell, and Lenovo which leads to decreased production costs and prices. As a result, these companies are able to offer their products at reduced prices to consumers. If computer production was carried out by numerous small firms instead of a limited number of large firms, the cost of the product would be higher.

Oligopolies in society have a positive impact, fostering technological advancement and leading to economic growth and improved quality of life. This

is evident in the computer manufacturing industry, where companies like HP, Acer, Dell, Apple, and Lenovo can effectively boost their production capacities by leveraging abundant resources. Within this sector, competition serves as a driving force for innovation among these firms.

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