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    Four-Firm Concentration Ratio

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    There are two separate parts to this IP: a market with CR =30 and a market with CR =80. This project concerns the measurement and analysis of competition. Each part requires you to describe the industry"; interpret "industry" to be "market structure". There is insufficient information to calculate HHI.

    Industry structure is often measured by computing the Four-Firm Concentration Ratio. Suppose you have an industry with 20 firms and the CR is 30%. 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 30%. 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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    Solution Preview

    The four-firm concentration ratio, represents the market share, as a percentage, of the four largest firms in the industry.

    From a market structure standpoint, if the four firm concentration ratios is less than 40% it represents monopolistic competition. In such a market, many different competitors offer slightly different products. They compete aggressively through advertising the ...

    Solution Summary

    Price leadership and the FFCR