Economics in a Global Environment

Paper Summary:

This paper examines markets based on the analysis known as the four firm concentration ratio, which involves the use of the market share as a percentage of the four largest firms in a given industry. The writer explains that under structural theory this ratio is a measure of competitiveness. Further the writer points out that as a rule if the four firm concentration ratio is more than 60, the market is considered an oligopoly while if it is less than 40 the market is seen as exemplifying monopolistic competition.

From the Paper:

"The analysis known as the four-firm concentration ratio, which involves the use of the market share, as a percentage, of the four largest firms in a given industry. Under structural theory, this ratio is a measure of competitiveness. As a rule, if the four-firm concentration ratio is more than 60%, the market is considered an oligopoly, while if it is less than 40%, the market is seen as exemplifying monopolistic competition. Assuming that the industry under discussion has 20 firms, and that the concentration ratio is 30%, how would one describe this industry? Given this scenario, the industry would be described as exemplifying monopolistic competition. This involves four characteristics: First, all the firms "produce similar yet not perfectly substitutable products". Second, all firms may enter the industry if the profits are attractive to them."

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