ECO204: Principles of Microeconomics (BAK1203A)
Economists will sometimes use concentration ratios in order to measure to see if industries are oligopolies. Oligopolies are industries dominated by few firms that, by virtue of their individual sizes are large enough to influence the market price” (Case, Fair, Oster, 2009). These firms are measured to show what their actual outputs are and this is done by using concentration ratios. Concentration ratios are share of industry output in sales or employment accounted for by the top firms. I will be analyzing the four-firm concentration ratios for the following industries: fluid milk (311511), women's and girl's cut & sew dresses (315233), envelopes (322232), electronic computers (334111). For example, “Concentration ratios share of industry output in sales or employment accounted for by the top firms” (Case, Fair, Oster, 2009). I will be discussing which industries have a high level of competition and a low level of competition. The fluid milk industry falls under food manufacturing along with butter, cheese and ice cream. Based on the 2002 census report the fluid milk manufacturing industry is made up of 315 companies. When we look at the concentration ratio for fluid milk we are looking at the four largest firms. The four largest firms make up 42.6% of the total amount of distribution in that particular market. From what I have analyzed from the 2002 census, I found that the fluid milk industry wouldn’t be an oligopoly. The fluid milk industry wouldn’t be controlled by a certain amount of producers in order to make a significant price change. The women's and girl's cut & sew dresses is categorized under apparel manufacturing such as wedding attire, formal wear, and evening wear. Based on the 2002 census there are 525 companies that are in this category. The four largest companies make up 21.6% of total value of shipments. In my opinion there wouldn’t be enough influence to consider this as an oligopoly. Therefore the women's and girl's cut & sew dresses should not fall under an oligopoly. In my opinion there wouldn’t be enough influence to consider this as an oligopoly. Envelope manufacturing is going to fall under paper manufacturing with shipping, storage and mailing. The four largest companies have a total value of shipments of 51.1% according to the 2002 census. The envelope manufacturing industry has a total of 166 companies that make up this industry. Since this industry is over 50% it would be a considered as an oligopoly. In return since total values of shipments are 51.1% it can have an influence on the market in which the price can be affected in either a positive or negative way. In other words the market value would be controlled by the industry. Electronic computer manufacturing has a total of 465 companies and it falls under the machining manufacturing industry. According to the 2002 census, the four largest companies have a total value of shipments of 75.5%. In return this would fall into the category of an oligopoly. Like we have seen with envelope manufacturing, since it is above 50% this would have an influence on the market values. The competing companies would need to alter their prices in order to compete with electronic computer manufacturing giants such as Hewlett Packard and Apple. The electronic computer manufacturing would be considered dominant. When considering which markets have a high level of competition I would have to say that the fluid milk industry and the women's and girl's cut & sew dresses fall into that category. For example, “Firms in highly competitive industries face relentless competition. Highly competitive industries have very low barriers to entry and a large number of firms. It is difficult to make high profits in these industries. The rate of business failure in these industries is very high.