Part II: Structural Analysis of the Industry II.3. Concentration : Measurement and trends SLIDESHOW 8

Question 1

As a reminder, what are the 2 components of seller concentration?

Answer 1

1\ Number of firms

2\ Size distribution of firms

Question 2

What are the 2 components of the definition of the market?

Answer 2

1\ Product dimension

2\ Geographic dimension

Question 3

How de we measure the consumer substitution?

Answer 3

Through the cross-price elasticity of demand

Question 4

What does it mean if the CED is large and positive? (consumption point of view)

Answer 4

2 goods are close substitutes in consumption

Question 5

What does it mean if the CED is large and negative?

Answer 5

2 goods are close complements

Question 6

What does it mean if CED is negative? (production point of view)

Answer 6

Goods are substitutes in production

Question 7

What does geographic market definition refer to?

Answer 7

The determination of effect of an increase in the price on a product and the consequences on the demand or supply in another location. Thus, for same product???

Question 8

What does the word industry stand for?

Answer 8

Market’s supply side

Question 9

What does the word market stand for?

Answer 9

Supply/production and demand/consumption

Question 10

What is the objectives of the NACE?

Answer 10

1\ standardize industry definitions
2\ inter-country comparisons
3\ harmonization of competition industrial policy

Question 11

What are the 2 levels making it possible to measure seller concentration?

Answer 11

1\ Geographical boundary

2\ Members of some industry or market

Question 12

What is the 1st type of seller concentration?

Answer 12

The Aggregate Concentration

Question 13

What does AC reflect and how is it measured?

Answer 13

It reflects the importance of the largest firms. And it is measured as the share of the n largest firms in the total sales, assets or employment for the economy

Question 14

What could happen if AC is high?

Answer 14

The economy’s largest firms have opportunities to exert a disproportionate degree of influence over politicians or regulators

Question 15

What are the Hannah and Kay’s criteria for concentration measures?

Answer 15

The market share distribution has an impact on seller concentration

Question 16

What does the n-firm concentration ratio (CRn) measure?

Answer 16

The share of the industry’s n largest firms in some measure of total industry size. Calcul montant/somme des montants

Question 17

What is the basis of the Herfindahl-Hirschman index?

Answer 17

The sum of the squared market shares of all firms in the industry

Question 18

What does it mean if HH=1?

Answer 18

Single monopoly producer.
Be careful with the numbers equivalent of the HH index (1/HH) = 1, one dominant firm.
HH = 1/N : N equal-sized firms

Question 19

What is the minimum possible value in an industry?

Answer 19

HH = 1/N

–> N equal-sized firms

Question 20

Between the n-firm ration and the HH index, which is the most satisfactory in respect of their ability to satisfy the Hannah and Kay criteria?

Answer 20

HH index

Question 21

What is the entropy coefficient?

Answer 21

The weighted sum concentration measure. But the weights are inversely related to the firms’ market shares

Question 22

What does it mean if E is small?

Answer 22

Highly concentrated industry

Question 23

What does it mean if E is large?

Answer 23

Industry with low concentration

Question 24

E=0?

Answer 24

Single monopoly producer

Question 25

E = log(N)

Answer 25

N equal-sized firms

Question 26

Why is it inconvenient to use E?

Answer 26

Because it depends on the number of firms. Solution : Standardized entropy = RE

Question 27

RE = 0

Answer 27

Monopoly

Question 28

RE = 1

Answer 28

N equal-sized firms

Question 29

What is the variance?

Answer 29

A standard measure of dispersion or inequality within any data set

Question 30

High variance? | Low variance?

Answer 30

High : inequality | Low : same size firms

Question 31

Why is VL a good provider of measure of inequality across the entire firm size distribution?

Answer 31

Log-transformation reduces or eliminates the skewness in the original distribution. VL is unaffected by scaling

Question 32

What does the Lorenz curve show?

Answer 32

The variation in the cumulative size of the n largest firms in an industry, as n varies from 1 to N

Question 33

How is the Lorenz curve if all the firms are equal sized?

Answer 33

45-degree line

Question 34

How is the Lorenz curve if the size distribution is skewed?

Answer 34

Lorenz curve is concave

Question 35

Gini = 1

Answer 35

One dominant firm with a market share approaching one

Question 36

G = 0

Answer 36

N equal-sized firms

Question 37

What is the Gini coefficient?

Answer 37

A measure of inequality in the firm size distribution. (Households incomes)

Question 38

What are the issues with these calculations?

Answer 38

Specific industry, which boundary?

Question 39

What if calculations only take in consideration domestic data?

Answer 39

Understate the true degree of concentration

Question 40

What if calculations only take in consideration a firm's reported accounts?

Answer 40

Not take account of diversification