Market Structure Of Semiconductor Industry

Topics: Herfindahl index, Concentration ratio, Monopoly Pages: 3 (457 words) Published: January 27, 2015
Market Structure Of Semiconductor Industry

Quick Reference to Basic Market Structure
Market Structure
Seller Entry Barriers
Seller Number
Buyer Number
Type of Product
Perfect Competition
No
Many
Many
Identical
Monopolistic Competiton
No
Many
Many
Differentiated
Oligopoly
Yes
Few
Many
Either identical or differentiated
Monopoly
Yes
One
Many
Unique
Monopsony
No
Many
One
Either identical or differentiated

Concentration Ratios
The concentration ratio indicates whether an industry is comprised of a few large firms or many small firms. The four-firm concentration ratio, which consists of the market share (expressed as a percentage) of the four largest firms in an industry, is a commonly used concentration ratio. The Herfindahl index, another indicator of firm size, has a fair amount of correlation to the concentration ratio.  The four-firm concentration ratio is an indicator of the size (as measured by output or sales) of the four largest firms within an industry, compared to the output of the entire industry. It is determined as follows:

CR4=(X1+X2+X3+X4)/T

where Xn is the output of the nth largest firm and T is the total output of the industry. The Herfindahl-Hirschman Index (HHI) is a market concentration index determined as follows:

HHI=∑(Si)2

where S is the proportion of market share for the ith firm & i=0 to n The Herfindahl Index (H) ranges from 1/N to one, where N is the number of firms in the market. Equivalently, if percents are used as whole numbers, as in 75 instead of 0.75, the index can range up to 1002, or 10,000. A HHI index below 0.01 (or 100) indicates a highly competitive index. A HHI index below 0.15 (or 1,500) indicates an un-concentrated index. A HHI index between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration. A HHI index above 0.25 (above 2,500) indicates high concentration

Increases in the Herfindahl index generally indicate a decrease in competition and an increase...
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