Question

Explain the advantages and disadvantages of the n-firm concentration ratio as a measure of seller concentration. ( 20 marks)

Answer 1

Concentration ratios are utilized to show the market control degree of the large firms in the business, and the intensity oligopolistic of an industry.

Advantages

• The more the organizations utilized in the ratio, the more helpful it is for seeing whether the business is modestly competitive or very competitive. It won't, notwithstanding, show whether the business is dominated by only a couple of firms. For instance, the 10-firm proportion for two businesses might be 90per penny. Be that as it may, if in one case there are 10 firms of generally equivalent size, all with a piece of the pie of approximately 9 percent, at that point this will be a substantially more serious industry than the other one, if that other one is overwhelmed by one enormous firm which has a 85 percent piece of the pie
• The n-firms may create a genuinely normalized item for a national market, sold through large outlets or huge outlet chains. They have the upside of economies of scale and can probably compete as far as cost. The little firms, then again, might have the option to deliver a more specialist item and additionally serve a specific nearby market. They may well contend more in wording of quality and assortment than as far as cost.

Disadvantages

• A high concentration ratio would infer that few organizations control a huge piece of a specific industry.
• In case that few organizations control a market, they could in principle straightforwardly impact the value clients pay. In case that their essential goal is to make better investor returns they are likely than work together to charge the more significant expense and get higher benefits