P&R 1: Discussion Questions: Guess as to what might be the four firm concentration ratio for corn growers in the United
States (knowing there are about 40,000 just in Iowa)? And what might be the carbonated soft drink producer's four firm
concentration ratio, an industry that heavily depends upon high fructose corn syrup as a key ingredient?
Theory suggests that when there are many growers/sellers of product in the market (perfect competitive market), the four firm
concentration ratio is expected to be close to zero. On the other hand, when there are few sellers or firms, the four firm
concentration ratio is expected to be closer to 1. There are many identical size, corn growers, about 40,000, so the ratio is
expected to be very close to 0. There are fewer carbonated soft drink producers, the four major companies being Coca-Cola,
PepsiCola, Cadbury Schwepps, and Cola, so the four firm concentration ratio is expected to be a lot closer to one. I have
reproduced below a couple of additional summaries.
Summary: W2P1 – Corn Syrup
The textbook states that, “when an industry is composed of a very large number of firms, each of which is very small, the four-
firm concentration ratio is close to zero.” Because we identified that there are at least 40,000 corn growers in Iowa alone, that
justifies that the four-firm concentration ratio is very close to zero. The book states that,
the closer the four-firm concentration
ratio is to zero, the less concentrated is the industry.
The carbonated soft drinks producers’ four firm concentration ratio may be slightly different than that of corn growers. The
textbook states that the “four firm concentration ratio for soft drinks is 46 percent. They explain that this may seem low because
it is believed that Pepsi and Coca Cola dominate the market, but this is without taking similar products into consideration. There
are more broadly defined types of drinks included in this ratio, including birch beer, root beer, fruit drinks, ginger ale, iced tea,
and lemonade. There are several other companies that fit into this category which makes the ratio seem low. These are all close
substitutes for soft drinks and so dilute the concentration ratio.
B) Summary: W2P1 – Corn Syrup: