ECO204
Analysis of Firms by Market Structure
Part 1: “Theoretical and Practical Measu
of Market Structure”
Ajaz Hussain, Economics, University of Toronto (STG)
,Some Biz-Decisions of a “Firm” (loosely speaking)
In 204, we study this
Organizational
module for firms in various Structure&
“market structures” Decision-
Making
Architecture
Prices & “Competitive
Output Strategy”
(Loosely speaking)
Partial list of a Production
Executive firm’s biz-decisions Process and
Technology:
Compensation
Inputs à
Output(s)
Marketing,
Capital Branding,
Structure Advertising,
Segmentation
,Market Structure: Theory
In theory, Market Structure “Characterized” By Number of Firms and/or Whether or Not Firms are Pr
Monopoly Oligopoly “Perfect” Compe
Finite 𝑁 > 1 Price Tak
Finite 𝑁 > 1 Partial Price Making
𝑁 = 1 Price Making Firm (Note: some texts/cour
Firms
that Perfect Competit
∞ (Cournot) Oligopo
Example: Number of Firms and Market Power?
“The market for crude oil is global, and Texas as a whole (let alone a single
constitutes only 1.3 percent of world oil production; thus, the exercise of mark
by Texas oil producers is implausible (Texas and world production data are for
were accessed from the US Energy Information Administration [from here] , res
on September 27, 2015)”
Source: Soren T. Anderson, Ryan Kellogg, and Stephen W. Salant, "Hotelling
Pressure," Journal of Political Economy 126, no. 3 (June 2018): 984-102
, Market Structure: Practical Measures 1
In practice, two metrics of Market Structure: Concentration Ratio 𝑪𝑹𝑵 and Herfindahl-Hirschmann In
“Tricky”. Lucr
Define the “Market” Boundary and let 𝑇 = Total # of firms in the market for Corporate Fi
"#$% # $'(')*'+
Calculate each firm’s % share of market revenues (𝑠! = ,-$.'/ $'(')*'
100)
Concentration Ratio = 𝐶𝑅0 Herfindahl-Hirschmann Index = 𝑯𝑯
Sort 𝒔𝒊 in descending order. Pick integer 𝒏 and compute: Compute:
𝒏 𝑻
𝑪𝑹𝒏 = - 𝒔𝒊 𝑯𝑯𝑰 = - 𝒔𝟐𝒊
𝒊3𝟏 𝒊3𝟏
Range of 𝐶𝑅" and 𝐻𝐻𝐼?
Analysis of Firms by Market Structure
Part 1: “Theoretical and Practical Measu
of Market Structure”
Ajaz Hussain, Economics, University of Toronto (STG)
,Some Biz-Decisions of a “Firm” (loosely speaking)
In 204, we study this
Organizational
module for firms in various Structure&
“market structures” Decision-
Making
Architecture
Prices & “Competitive
Output Strategy”
(Loosely speaking)
Partial list of a Production
Executive firm’s biz-decisions Process and
Technology:
Compensation
Inputs à
Output(s)
Marketing,
Capital Branding,
Structure Advertising,
Segmentation
,Market Structure: Theory
In theory, Market Structure “Characterized” By Number of Firms and/or Whether or Not Firms are Pr
Monopoly Oligopoly “Perfect” Compe
Finite 𝑁 > 1 Price Tak
Finite 𝑁 > 1 Partial Price Making
𝑁 = 1 Price Making Firm (Note: some texts/cour
Firms
that Perfect Competit
∞ (Cournot) Oligopo
Example: Number of Firms and Market Power?
“The market for crude oil is global, and Texas as a whole (let alone a single
constitutes only 1.3 percent of world oil production; thus, the exercise of mark
by Texas oil producers is implausible (Texas and world production data are for
were accessed from the US Energy Information Administration [from here] , res
on September 27, 2015)”
Source: Soren T. Anderson, Ryan Kellogg, and Stephen W. Salant, "Hotelling
Pressure," Journal of Political Economy 126, no. 3 (June 2018): 984-102
, Market Structure: Practical Measures 1
In practice, two metrics of Market Structure: Concentration Ratio 𝑪𝑹𝑵 and Herfindahl-Hirschmann In
“Tricky”. Lucr
Define the “Market” Boundary and let 𝑇 = Total # of firms in the market for Corporate Fi
"#$% # $'(')*'+
Calculate each firm’s % share of market revenues (𝑠! = ,-$.'/ $'(')*'
100)
Concentration Ratio = 𝐶𝑅0 Herfindahl-Hirschmann Index = 𝑯𝑯
Sort 𝒔𝒊 in descending order. Pick integer 𝒏 and compute: Compute:
𝒏 𝑻
𝑪𝑹𝒏 = - 𝒔𝒊 𝑯𝑯𝑰 = - 𝒔𝟐𝒊
𝒊3𝟏 𝒊3𝟏
Range of 𝐶𝑅" and 𝐻𝐻𝐼?
