Measure of industry concentration

Market concentration (Industry concentration, seller concentration) is a function of the number of firms and their respective shares of the total production (alternatively, total capacity or total reserves) in a market.

Two commonly-used methods of measuring industry concentration:

- the Concentration Ratio (CR),

- the Herfindahl-Hirschman Index (HHI).

The Concentration Ratio (CR)- is a measure of the total output produced in an industry by a given number of firms in the industry. Concentration Ratio is usually used to show the extent (степень) of market control of the largest firms in the industry and to illustrate the degree to which an industry in oligopolistic.

where Si = market share of the ith firm.

CRm = S1+S2+S3+…+Sm.

Concentration Ratios range from 0 to 100 percent. The levels reach from no, low or medium, to high, to “ total” concentration.

No concentration: 0% means perfect competition or at least monopolistic competition. Total concentration: 100% means an extremely concentrated oligopoly.

Low concentration: 0%-50% ranges from perfect competition to oligopoly. Medium concentration: 50%-80% the industry is likely an oligopoly.

High concentration: 80%-100% ranges from oligopoly to monopoly.

Critics:

- does not use the market share of all the firms in the industry.

- does not provide the distribution of firm size.

- does not provide a lot of details about competitiveness of the industry.

The Herfindahl-Hirschman Index (HHI)

It provides a more complete picture of industry concentration than does the CR.

The HHI uses all the firms in industry and these market shares are squared in the calculation to place more weight on the larger firms. (см. билет 35, конец).

Resource market. Reasons for high productivity.

Labor

1) Workers in the popular sense of the term(blue-and white-collar workers)

2) Professional people(lawyers, teachers)

3) Owners of small business

Wages(wage rates) – price paid for labor (Зарплата)

Forms:

- Per unit of product

- Per unit of time(per hour, per day, etc.)

- A nominal wage is the amount of money

- A real wage is the quantity of goods and services a person can obtain with nominal wage

Role of productivity

The demand for labor depends on productivity

The greater the productivity of labor, the greater the demand for it.

Reason for high productivity:

*plentiful capital(the access to large amounts of capital resources)

*Access to abundant natural resources

*Advanced technology

*Labor quantity(the health, viger, education)

*Intangible factors(the efficiency of management, the vast size of the domestic market,etc)

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