12GottOligopolyShow

12GottOligopolyShow - Price and Output Under Oligopoly...

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12 - 1 Price and Output Under Oligopoly Concentration ratio and the Herfindahl-Hirschman Index (HHI) Horizontal, vertical and conglomerate mergers Game theory Price discrimination Brand multiplication Cartels
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12 - 2 Concentration ratio Measure of market power. Total sales of the 4 leading firms / industry’s total sales If 40%: oligopoly (not official)
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12 - 3 A few examples of the four-firm concentration ratio Traditional agriculture: Less than 5 percent Sheet metal: 9 percent Publishing: 23 percent Soap and detergents: 63 percent Aircraft: 79 percent Cigarettes: 93 percent
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12 - 4 Market share, U.S. cigarettes 2002 Company U.S. Brands Market share Philip Morris (Altria) Marlboro, Basic, Virginia Slims, Benson & Hedges (in U.S.), Merit, Parliament, Alpine, Cambridge, Bristol, Bucks, Commander, English Ovals, Saratoga, Superslims 49.40% R. J. Reynolds Camel, Doral, Winston, Salem, Vantage, More, Now, Century, Ritz, Monarch, Magna, Sterling 22.90% BAT/Brown & Williamson GPC, Kool, Viceroy, Raleigh, Barclay, Belair, Capri, Richland, Pall Mall, Lucky Strike 10.00% Lorrillard (Loews) Newport, Kent, True, Old Gold, Max, Style, Satin, Triumph, Montclair, Malibu, Riviera, Crowns, Special 10's, Bull Durham 8.20% 2.30% Other Peter Stuyvesant, Rothman's, Dunhill, Best Value, USA Gold, CT, Durant, Palace, Magic, First Class, Cabin, etc. 7.20% Also shows brand name multiplication
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12 - 5 Herfindahl-Hirschman Index Another measure of industry concentration. Sum of squares of of the market shares of all the firms in the industry. HHI = (S 1 ) 2 + (S 2 ) 2 + (S3) 2 + . . . + (S n ) 2 Greater weight to largest firms If 1 firm with 100%: HHI = 10,000 If 10 firms, each with 10%: 1,000
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12 - 6 EXHIBIT 4 BALANCED AND UNBALANCED OLIGOPOLY Calculate concentration ratios and HHI for both.
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This note was uploaded on 07/14/2010 for the course ECON 1 taught by Professor Bergstrom during the Fall '07 term at UCSB.

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12GottOligopolyShow - Price and Output Under Oligopoly...

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