Market Structures and the Behavior of the Firm
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Industry structure is often measured by computing the Four-Firm Concentration Ratio. Suppose you have an industry with 20 firms and the CR is 20%. How would you describe this industry? Suppose the demand for the product rises and pushes up the price for the good. What long-run adjustments would you expect following this change in demand? What does your adjustment process imply about the CR for the industry? Now consider that the industry has 20 firms but the CR for the industry is 80% instead of 20%. How would you describe this industry? What are some reasons why this industry has a high CR while the other industry had a low CR? Is it possible for smaller firms to thrive and profit in such an industry? How?
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Industry Structure
Industry Structure
Industry structure essentially means the underlying fundamental economic and technical forces of an industry. Each industry will have its key structural features, i.e. number of competitive market players, total market size, relative market share of the competitive players, nature of competition; differentiation practiced by the various players in the industry, entry barriers, cost structures, etc. The various features find out the strength of the competitive forces functioning in the industry. Therefore, each firm in the industry varies from the other.
The large number of firms involved in the industry is mainly linked with the simplification of coordination between the various firms. There is a positive relationship between the number of firms and competition level like the competition level increases in the same ratio as the number of the firms' increases in the industry; it means that both are directly proportional to each other.
The Concentration ratio plays a crucial role in pointing out the proportional firm's size relative to the industry as a whole. This ratio also furnishes assistance in finding out the relative market share of the industry. This ratio mainly shows variations from 0% to 100%. Four firm concentration ratios (C4), which is most commonly ...
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- MBA (IP), International Center for Internationa Business
- BBA, University of Rajasthan
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