3.Mkt Structure and Mkt Power

3.Mkt Structure and Mkt Power - CHAPTER 3 Market Structure...

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CHAPTER 3 Market Structure and Market Power 1
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Market structure - “how industry’s producers are organized” . Industries have very different structures numbers and size distributions of firms ready-to-eat breakfast cereals: high concentration furniture: low concentration How best to measure market structure summary measure concentration curve is possible preference is for a single number 2 Introduction
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CRn: market share of the top n firms . Drawbacks: 1. omits other information along the curve. Example: A B 10 55 10 2.25 …. 10 2.25 =40 =61.75  B is more concentrated =80 =70.75  A is more concentrated 2. Does not specify the distribution of output among firms. 3 Concentration Measures
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Most economists prefer to use the HHI where s i : market share of the ith firm. For a monopoly: HHI = 10,000 . Advantage: more complete description. Rather than just a single point on the curve. Disadvantage: Market data are needed for all firms in the industry. 4 Concentration Measures
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DoJ - HHI guidelines for evaluating mergers. Unconcentrated Markets : HHI below 1500 Moderately Concentrated Markets : HHI between 1500 and 2500 Highly Concentrated Markets : HHI above 2500 Mergers involving an increase in the HHI of less than 100 points are unlikely to have adverse competitive effects and ordinarily require no further analysis. Mergers resulting in unconcentrated markets are unlikely to have adverse competitive effects - require no further analysis. 5 Concentration Measures
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Mergers resulting in moderately concentrated markets that involve an increase in the HHI of more than 100 points potentially raise significant competitive concerns and often warrant scrutiny. Mergers resulting in highly concentrated markets that involve an increase in the HHI of between 100 points and 200 points potentially raise significant competitive concerns and often warrant scrutiny. Mergers resulting in highly concentrated markets that involve an increase in the HHI of more than 200 points will be presumed to be likely to enhance market power. The presumption may be rebutted by persuasive evidence showing that the merger is unlikely to enhance market power. 6 Concentration Measures
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Compare two different measures of concentration: 7 Firm Rank Market Share Squared Market (%) Share 1 25 2 25 3 25 4 5 5 5 6 5 7 5 8 5 625 625 625 25 25 25 25 25 CR 4 = 80 Concentration Index H = 2,000 25 25 Concentration Measures
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Effect of a merger 8
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