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Four-Firm Concentration Ratio

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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 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? Contrast the effects on market efficiency if the dominating firms use a price leadership model versus a contestable markets model. Be sure to show your work.

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Contrast the effects on market efficiency if the dominating firms use a price leadership model versus a contestable markets model

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If there was an industry with 20 firms and the CR is 30%, this would mean the firm was a monopolistic competition. What a CR of 30% means is that the four largest firms in the industry have a market share of 30%. This is because the question mentions the Four-Firm Concentration Ratio.
Now, suppose the demand for the product rises and pushes up the price for the group, the long-term adjustments will be that the share of the 4 largest firms, because of their dominant position in the market will increase in greater proportion than the share of the other 16 firms. In short, the share of the 4 largest firms will cross the 40% mark. This means that the Four- Firm Concentration Ratio will turn greater than 40% and the structure of the industry will change from that of monopolistic ...

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