Question

The U.S. has a shortage of ventilators to treat critically ill coronavirus patients. Based on this article what does the market concentration have to do with this shortage? Explain. Discuss Covidien's purchase of Newport Medical Instruments. (minimum of 10 sentences).

Answer 1

Market concentration measures the extent to which market shares are concentrated between a small number of firms. It is often taken as a proxy for the intensity of competition. In US some of the major manufacturers of ventilators are Resmed Inc, Dickinson and company, Teleflex incorporated and GE healthcare. The market concentration ratio measures the combined market share of all the top firms in the industry. The value of top firms or top ‘n’ firms may be three or maximum five. If the top firms keep on gaining market share, then we say that the industry has become highly concentrated. Concentration within an industry can be defined as the degree at which a small number of firms make up for the total production in the market. If the concentration is low, it simply means that top ‘n’ firms are not influencing the market production and the industry is considered to be highly competitive. On the other hand, if the concentration is high, it means that top ‘n’ firms influence the production or services provided in the market the industry then is said to be oligopolistic or monopolistic. Due to market concentration in US for the manufacturing of ventilators, the prices of ventilators are more due to reduced competition. This has led to the shortage during this covid 19 crisis. There are less ventilators and more buyers due to which the price of ventilators are surging. Some news articles also show that some hospitals failed to get more ventilators as the contractor sold it to another hospital for a higher price. If the market was less concentrated and there would have more manufacturers then this would have led to increased competition which would have driven the price to an affordable limit.