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OutputandCosts - MarketStructure,OutputandCost Chapter to...

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Click to edit Master subtitle style Market Structure, Output and Cost Chapter 11 11
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Course Outline {93B6C7DD-B656-4597-8DAF-0C35C7E5FCD7} Microeconomics troduction is Economics? Markets Work nd and supply tional Topics holds’ Choice Elasticity ncy and Equity t Actions in Markets s and Markets y and Demand references, and Choices onomic Problem put and Costs ct Competition Monopoly istic Competition Oligopoly 22
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33 Market Structure  Parkin (page237-241) n Four types of market structure n Measuring market concentration n Hong Kong’s market structure
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44 I. Market Structure Economists identify four market types: 1. Perfect competition 2. Monopolistic competition 3. Oligopoly 4. Monopoly
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55 I.  Market Structure 1. Perfect competition Arises when there are many firms each selling an identical product, many buyers, and no restrictions on the entry of new firms into the industry.
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66 I.  Market Structure 2. Monopolistic competition A market structure in which a large number of firms compete by making similar buy slightly different products. Product differentiation gives a monopolistically competitive firm an element of monopoly power.
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77 I.  Market Structure 3. Oligopoly A market structure in which a small number of firms compete.
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88 I.  Market Structure 4. Monopoly An industry that produces a good or service for which no close substitutes exists and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms.
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99 II.  Measures of Concentration   1. The four-firm concentration ratio 2. The Herfindahl-Hirschman Index
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1010 II. Measures of Concentration The Four Firm Concentration Ratio q Measures the percentage of the value of sales accounted for by the four largest firms q Range from 0 percent to 100 percent
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1111 II. Measures of Concentration Herfindahl-Hirschman Index (HHI) q The square of the percentage market share of each firm summed over the largest 50 firms (or the number of firms if there are less than 50) q Range from approximately 0.5 to 10,000. q In perfect competition the HHI is small.
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1212 II. Concentration Ratio Calculations Tiremakers Sales Firm (millions of dollars) Top, Inc. 200 ABC, Inc. 250 Big, Inc. 150 XYZ, Inc. 100 Top 4 sales 700 Other 10 firms sales 175 Industry sales 875 Four-firm concentration ratios: Tiremakers: 700/875 × 100% = 80%
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1313 II. Concentration Ratio Calculations Printers Sales Firm (millions of dollars) Fran’s 2.5 Ned’s 2.0 Tom’s 1.8 Jill’s 1.7 Top 4 sales 8.0 Other 1,000 firm’s sales 1,592.0 Industry sales 1,600.0 Four-firm concentration ratios: Printers: 8/1,600 × 100% = 0.5%
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1414 II. Calculate HHI n Suppose an industry consists of 3 firms. One has sales of $30 million. The other two have sales of $10 million each. n HHI=[(30/50)2 +(10/50)2 +(10/50)2]*10000=4,400
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1515 3. Four-Firm concentration ratio and HHI in US (1997/2002) Industry C4 HHI Breakfast cereals 83/82 2446/3000 Electronic computers 45/81 728/2662 Games and toys 43/39 564/494 Men’s and boy’s clothing 42/50 846/1020 Motor vehicles 82/85 2,506/N/A Ready-mixed concrete 7/11 29/57 Semiconductors 34/48 414/908 Soap and detergent 65/63 1,618/2308 Soft drinks 47/46 800/710 Tires 73/73 1,814/1645 Women’s and girl’s clothing 14/14 111/87
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