ECON 201 Lecture 13: Measuring Market Concentration
Document Summary
Concentration ratio: the percentage of the market"s total output supplied by its four largest. The higher the concentration ratio, the less competition. This chapter causes an oligopoly, a market structure with high concentration ratios. They sell (almost) identical products, hence can only compete over price. Since there are only a few large firms, collusion is potentially possible. Collusion: an agreement among firms in a market about quantities to produce or prices to charge. Game theory: game theory helps us understand oligopoly and other situations where (cid:498)players(cid:499) interact and behave strategically. Both firms would be better off if both stick to the cartel agreement. But each firm has incentive to renege on the agreement. Lesson: it is difficult for oligopoly firms to form cartels and honor their agreements. Many possibilities-mostly depending on what a firm assumes other firms will do. Your strategy, apparently depends on your belief of other players" behaviours. Whether your opponents are rational, are the threats credible, etc.
