Oligopolies Essay

1257 WordsMar 10, 20126 Pages
Oligopolies or Not I. Introduction This paper will explore how we can use concentration ratios to evaluate the market structure of particular industries to determine if they possess the characteristics of an oligopoly. “An oligopoly is an industry dominated by a few firms that, by virtue of their individual sizes, are large enough to influence the market price” (Case, Fair, & Oster, 2009, p. 283). For my assessment, I will specifically review the four-firm concentration ratios as calculated based on market shares of the largest firms in the industry. The data used was collected by the U.S. Census Bureau during the 2002 census, and I have provided a table of the consolidated data in the appendix of this paper for further review. To ensure consistency in my review, I will use standard concentration levels to determine the level of concentration, and to determine if that level rises to the level of a market structure in an oligopoly. Because there is no distinct set of concentration ratios are universally used to separate one market structure from the other, I will separate concentration levels into three categories; low, medium, and high. A concentration level of 0%-49% will be interpreted as a low concentration level not meeting the standards of an oligopoly. A concentration level of 50%-74% will be interpreted as a medium concentration level which is approaching the standards of an oligopoly, and a concentration level of 75%-100% will be interpreted as a high concentration level therefore falling into the category of an oligopoly. In conjunction with concentration ratios, I will also review the Herfindahl-Hirschman Index (HHI) as an supplementary data point to help in my assessment. HHI is used by the Justice Department in determining whether or not to challenge an industry merger. “If the index is between 1,000 and 1,800, the department will challenge

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