Question

- What is the meaning of a top-four concentration ratio of 20 percent? 85 percent?

- Suppose that Delta Airlines practices price discrimation in the sale of tickets to business travelers and tourists. Discuss how price discrimination can result in higher revenues and profits for the firm than those that would occur in the absence of price discrimation.

-we have learned about the four basic market structures in our economy – perfect competition, monopolistic competition, oligopoly, and monopoly. Please visitwww.superbowl-ads.com/ which provides a listing of all of the companies that have advertised during the most recent Super Bowls. For the most part, all of these companies compete in an industry that has what kind of market structure (i.e. is it perfect competition, monopolistic competition, oligopoly, or monopoly?)? Why do businesses in this kind of market structure advertise during the Super Bowl? Why do businesses in the other three market structures generally avoid preparing and airing commercials during the Super Bowl (please provide a specific reason for each of the other three market structures)? Please explain your answer in detail.   

Answer 1

THE CONCENTRATION RATIO IS CALCULATED AS THE SUM OF THE [PERCENTAGE SHARE HELD BY THE TOPMOST FIRMS IN AN INDUSTRY.

IF THE TOP FOUR CONCENTRATION RATIO IS 20% THEN IT IMPLIES THAT THE MARKET STRUCTURE IS PERFECTLY COMPETITIVE. HOWEVER, IF THE TOP FOUR CONCENTRATION RATIO IS 85%, THEN THE MARKET STRUCTURE IS OLIGOLOLISTIC.

PRICE DISCRIMINATION OCCURS WHEN FIRMS HAVING MARKET POWER CAN TAKE ADVANTAGE OF THE VARYING PRICE ELASTICITIES OF DEMAND. IF PRICES ARE RAISED FOR AIRLINE TICKETS, INDIVIDUALS HAVING AN INELASTIC DEMAND CANNOT ALTER THEIR DEMAND FOR AIRLINE TICKETS. THIS WILL HELP THE AIRLINE COMPANY TO SURGE THEIR REVENUES AND PROFITS. HOWEVER, AIRLINE COMPANIES DO OFFER DISCOUNTS AND PRICE CUTS FOR INDIVIDUALS HAVING ELASTIC DEMAND.

SURELY, PRICE DISCRIMINATION DOES HELP THE AIRLINE COMPANY. THE ADDITIONAL COST OF AN EXTRA PASSENGER TO BE ADMITTED IN THE FLIGHT IS RELATIVELY LOWER THAN THE FIXED COSTS ASSOCIATED WITH THE FLYING OF THE AIRPLANE. THUS TO MAXIMISE THE REVENUE, THE AIRLINE WILL DO ITS BEST TO SELL ALL TICKETS. THEREFORE AIRLINES HEAVILY INVEST IN THE BUSINESS OF STRENGTHENING THIER TICKETING SYSTEMS IN ORDER TO RETAIN THE CONSUMER SURPLUS.