Question

1. How does taking into consideration the global market change a
concentration ratio such as the 4-firm concentration ratio?

2. Why does the government bother itself with assessment of vertical and
horizontal mergers?

3.  What is the relationship between research and development and industry
concentration do you think?

Answer 1

The four-firm concentration ratio is a tool that helps industry officials and government regulators to assess the state of competition in a market. By measuring the combined market shares of the top four companies in a specific industry ,one can tell whether there is imbalance in market competition created by company mergers. Low concentration means greater competition in an industry. High concentration ratio i.e 100% indicates monopoly. The market today is widespread. Firms are expanding globally. If an industry has high concentration ratio it means they are dominating the market. This reduces competition and restricts entry of new firms thus leading to unfair trade practises. To monitor unfair trade practises antitrust laws are put in place.

2) Horizontal and vertical mergers are two examples of the types of mergers that may a merger  occur between businesses.

• A horizontal merger is the one when a company acquires another company that is a direct competitor.
• Horizontal mergers  benefit companies competing in the same industry.
• The advantages include increasing market share, reducing competition, and creating economies of scale.
• Horizontal mergers face government scrutiny because when big corporations merge they create a monopoly and dominate the market. . Thus, stuting the growth of new enterprises. Hence there are antitrust laws in place. A horizontal merger  decreases competition in the market

  A vertical merger is when a company acquires another company that isn't a direct competitor but operates within the same supply chain.

  Vertical merger may place various reasons. Most common reasons are to reduce uncertainty over the availability or quality of supplies or the demand for output,to protect against monopolistic practices of suppliers and buyers with which the firm must deal with otherwise, and to reduce other  costs such as sales taxes and marketing expenses. Vertical mergers are anticompetitive because they  dominate the market share and restrict the entry of new business in the amrket. Hence, the government has laws in place.

3) Industrial concentration is the  structural characteristic of the business sector. It is the degree to which production in an industry or in an  economy as a whole is dominated by a few large firms. Research and development  represents the activities companies undertake to innovate and introduce new products and services .R&D allows a company to stay ahead of its competition. Research will help the industries expand their market globally hence leading to industrial concentration. Industrial concentration will lead to increase in production and increase in market share. Therefore research and development is a means to achieve the goal of industrial dominance and hence increase profit and market share.