Problem

Can you think of any examples of successful preda…

01:43

Problem 28 Easy Difficulty

What would be evidence of serious competition between firms in an industry? Can you identify two
highly competitive industries?

Answer

Antitrust laws are the laws and regulations that are imposed by government or authorities to
ensure the increased competitiveness in the market. It also helps observe and control mergers
and acquisition taking place between big or key firms.
The four-firm concentration ratio helps know the market dominance of top firms in the industry by
adding up the market share of top four market share holding firms in the industry. Herfindahl-
Hirschman index HII is one of the measures of market share of dominant firms in an industry.
HHI is calculated by squaring the market share of top firms and then adding them together. If the value of four-firm concentration ratio as well as HHl is significantly low then it is considered as an
evidence that there is high level of competition in that industry. Two examples of highly
competitive industries are Automobile industry and consumer durables.

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Principles of Microeconomics for AP® Courses

Chapter 11

Monopoly and Antitrust Policy

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Sandhya R.

June 19, 2021

If you were developing a product (like a web browser) for a market with significant barriers to entry, how would you try to get your product into the market successfully

Sandhya R.

June 19, 2021

If you were developing a product (like a web browser) for a market with significant barriers to entry, how would you try to get your product into the market successfully

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Video Transcript

one way to measure the competitiveness of an industry is to use the her fiddle Hirschman index. So what that is, I'm going to abbreviate that as h h I. And what that does is you add up the squared number of market share for each firm in that industry. Right? So let's say that you have from one has a share s CSM on, and you square that from two has a share to square that, and then you add up all the squares for each firm and the higher the H h I, the less competitive than industries. That means that the shares are more concentrated within a few leading controlling firms rather than more evenly distributed among more competitive firms. Right? So let's look at an example to get an idea of how these numbers were. So let's say, in one industry we have 10 different firms and each of them have a market share of 10% so each of them controlled 10% of the market. So what you would do is you would square each of that. You have 10 squared plus 10 squared on and on to basically, if you do 10 times 10 squared. You'll have 10 different times, right? And what you're going to get is the H I is 1000. Now let's compare that Teoh, in a market where there are only two firms and one of them has a market share of 80%. So this is a huge firm. They control a lot of this market, and then the other firm has a share of 20%. So you would add up to score both of these shares in what you would get 6800. Now that's a lot larger than the one where we only have, where we have a lot more firms with less market power, right? So the higher we go on this index, the less competitive the industry is in, the more we should be concerned about stopping monopolies, doing antitrust policy and things like that, uh, an example of some highly competitive industries would definitely be the auto market. Right cars. When you go to shop, you have a lot of different options, many different makes and models for a little bit different, and they have to keep competing to get you to come back right. Another industry might be higher education in the U. S. Right? We have so many different universities, colleges, and they all offer different things at different prices, and they have to compete to get you to come to the university.

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