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Sum of the squared market shares of its incumbents

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Consider two similar industries, portal crane manufacturing (PCM) and forklift manufacturing (FLM). The PCM industry has exactly three incumbents with annual sales of $800 million, $200 million and $100 million, respectively. The FLM industry has also exactly three incumbents, with annual sales of $500 million, $450 million and $400 million, respectively. Which industry is more likely to experience a higher level of rivalry?

a. PCM will experience higher degree of rivalry because the overall market size is lower in that industry ([800+200+100 = $1.1B] < [500+450+400 = $1.35B]), and the rivalry is always higher in the industries with lower demand.

b. FLM will experience higher degree of rivalry, because the size of its two smaller competitors is larger than the size of the two smaller competitors in the PCM industry ($450M>$200M and $400M>$100M).

c. We cannot tell from the information given: The sum of the market shares of the top four competitors, normally used to estimate the industry concentration cannot be calculated from the information above. We simply do not have enough incumbents!

d. FLM will experience higher degree of rivalry because the sum of the squared market shares of its incumbents, calculated from the information given (at .336), is lower than that of the PCM industry (at .570).

Reference no: EM132320967

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