Four-firm concentration ratios , Microeconomics

a) The four-firm concentration ratios for the following industries have been found from the Economic Census for Manufacturing (NAICS 31-33) as follows. The four-firm concentration is nothing but the percentage of total value of shipments (%) of the respective industry's "4 largest companies".

a. Fluid milk (311511) - 46%

b.Women's and girl's cut & sew dresses (315233) - 28.1%

c. Envelopes (322232) - 57.6%

d. Electronic computers (334111) - 86.9%

(b)   The industry involved in the manufacture of fabricated metal products is characterized by the highest level of competition with nearly 56,808 companies operating under the industry. The other industries involved in the manufacture of products namely printing and related support activities, miscellaneous items, printing, machine shops and threaded products, machinery, foods, machine shops, furniture and related products, etc are also characterized by a high level of competition with more than 20,000 companies operating in each segment.

The industry involved in the manufacture of men's and boy's underwear and nightwear is characterized by the lowest level of competition with just 7 companies operating under the industry. The other industries involved in the manufacture of products namely primary smelting and refining of copper, beet sugar, alumina refining, tobacco stemming and redrying, carbon black manufacturing, cane sugar refining, tire cord and tire fabric mills, household laundry equipment, guided missile and space vehicle, etc are characterized by a low level of competition since they have a total of less than 15 companies operating under the respective industry.

Oligopolies refer to a form of market wherein the industry is dominated by a small number of sellers or manufacturers. The characteristics of an oligopoly market are (1) An industry dominated by a few large firms, implying that there is a high degree of market concentration, (2) Firms manufacture and sell identical or differentiated products, (3) Industry has significant barriers to entry and (4) Firms are interdependent and the action of one firm will affect that of other industry players. As is evident from the above description, oligopolies are industries with very low level of competition. Hence the second list of industries namely primary smelting and refining of copper, beet sugar, alumina refining, tobacco stemming and redrying, cane sugar refining, etc fall into the category of oligopolies.

(c)    Oligopolies are markets wherein a very small number of firms account for a very large share of the industry's output. The industries with the highest percentage of total value of shipments for its 4 largest companies belong to oligopolies category. On adjusting the database, oligopolies were determined to be primary smelting and refining of copper (98.8%), household laundry equipment manufacturing (98.3%), underwear and nightwear knitting mills (98.1%), cigarette manufacturing (97.8%), space vehicle propulsion units and parts manufacturing (97.1%), cane sugar refining (95.2%), etc. A few firms in these industries with their characteristics (sales and number of employees) are included in the below table. All the below companies belong to large multinationals.

Firm

Industry

Sales ($ million)

Employees

Freeport-McMoRan Copper & Gold, Inc

primary smelting and refining of copper

18,982

39,200

Asarco LLC (Grupo Mexico)

primary smelting and refining of copper

1,704

2000

Whirlpool

household laundry equipment manufacturing

18,366

71000

General Electric

household laundry equipment manufacturing

150,211

287,000

Berkshire Hathaway, Inc

underwear and nightwear knitting mills

136,185

260,000

Hanesbrands Inc.

underwear and nightwear knitting mills

4,326.71

55,500

Altria Group Inc

cigarette manufacturing

24,363

10,000

Reynolds American Inc

cigarette manufacturing

8,551

5,750

(d)   Oligopolies have both good and bad to the society. The cons include the fact that oligopolies tend to be inefficient in the allocation of resources, charge a high price and produce less output and tend to increase the concentration of wealth and income. The pros include the facts that oligopolies lead to more product innovations and are able to take advantage of economies of scale thus lowering production costs and prices.

However, the cons of oligopolies do not apply to the above industries, since all their products are available cheap as compared to products of other industries which are in perfect competition. Besides, they certainly do not produce less output. There is not a large wealth concentration that these companies can exert influence over the economy, society or political system. However, all these businesses have allowed for economies of scale. The household laundry equipment manufacturing and underwear and nightwear knitting mills have also resorted to better R&D options thus offering better products to the society. Hence we cannot generalize that oligopolies are bad but they may be led in the wrong direction at times, which the countries must be beware of. However, the above determined oligopolies do not pose a threat to the society.

Posted Date: 3/14/2013 3:44:19 AM | Location : United States







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