Managerial Economics and Business Strategy Ch 7
Terms in this set (19)
Factors that affect managerial decisions, including the number of firms competing in a market, the relative size of firms, technological and cost considerations, demand conditions, and the ease with which firms can enter or exit the industry.
four-firm concentration ratio
The fraction of total industry sales generated by the four largest firms in the industry.
Herfidahl-Hirschman index (HHI)
The sum of the squared market shares of firms in a given industry multiplied by 10,000.
A measure of the sensitivity to price of a product group as a whole relative to the sensitivity of the quantity demanded of a single firm to a change in its price.
A measure of the difference between price and marginal cost as a fraction of the product's price.
Uniting productive resources. Can occur as a merger, in which two or more existing firms "unite" or merge, into a single firm. Or during the formation of a firm.
A situation where various stages in the production of a single product are carried out in a single firm.
The merging of the production of similar products into a single firm.
Reduces the number of firms that compete in the product market. This tends to increase the four-firm concentration ratio and the HHI for the industry, which increases the market power of firms in the industry.
The integration of different product lines into a single firm. Example: A cigarette maker and a cookie manufacturer merge into a single firm.
Refers to the profits and social welfare that result in a given industry.
Dansby-Willig performance index
Ranks industries according to how much social welfare would improve if the output in an industry were increased by a small amount.
Market structure "causes" firms to behave in a certain way. In turn, this behavior, or conduct, "causes" resources to be allocated in certain ways, leading to either good or poor market performance.
The conduct of firms in an industry may itself lead to a concentrated market.
Interrelated "forces" affect the level, growth, and sustainability of industry profits: 1. entry 2. power of input suppliers 3. power of buyers 4. industry rivalry 5. substitutes and complements.
There are many firms, each of which is small relative to the entire market. Firms have access to the same technologies and produce similar products, so no firm has a real advantage over others in the industry.
A firm that is the sole producer of a good or service in the relevant market.
There are many firms and consumers, just as in perfect competition. Concentration measures are closet o zero. Each firm produces a product is slightly different from the products produced by other firms; Rothschild indexes are greater than zero.
A few large firms tend to dominate the market. Firms in highly concentrated industries such as the airline, automobile and aerospace industries. When one firm changes its prices all firms in market are affected.
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