Concentration Ratios

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Have you ever wondered how industries are determined oligopolies or monopolies? In this paper I will discuss how concentration ratios are used to determine total market shares within four specific industries. I will also discuss the levels of competition within those industries and how oligopolies can benefit society.

Case, Fare, and Oster defines concentration ratio as the share of industry output in sales or employment accounted for by the top firms (2009). They are used to measure the total output produced by a certain number of firms within an industry. Four-firm concentration ratios are used to measure the total market share of the four largest firms in an industry. The industries that will be discussed are fluid milk manufacturing, women’s and girls’ cut and sew dress manufacturing, envelopes, and electronic computer manufacturing. Four-firm concentration ratios range from 0-100%. Monopolistic competition is taking place when the concentration ratio is 0%. Perfect competition to oligopoly is 0-50%, 50-80% is likely an oligopoly, 80-100% ranges from oligopoly to monopoly, and 100% concentration ratio is a monopoly.

Levels of competition can be determined by the ranges of the concentration levels. As mentioned above these levels range from 0-100% or no concentration to high concentration. The four-firm concentration ratio for fluid milk manufacturing was 42.6%. This falls in the low concentration range. This tells me there is a high level of competition in this industry and one manufacturer does not have a significant market share. The women’s and girls’ cut and sew dress manufacturing four-firm concentration ratio is 21.6%. This percentage also falls in the low concentration range which suggests that there is a high level of competition within the industry. The four-firm concentration ratio for the envelopes industry is 51.1%. The medium level of concentration ranges from 50-80%. This ranges from perfect...
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