3.1.5.3 Market concentration

• Market concentration measures the extent to which a few firms dominate the total sales in a market
• Restaurant chains are an example of an industry with low market concentration
• Order the following indicators of market concentration from simplest to most complex in terms of calculation:

  1️⃣ Four-Firm Concentration Ratio

  2️⃣ Herfindahl-Hirschman Index (HHI)

  3️⃣ Lorenz Curve and Gini Coefficient
• An HHI of 2,500 indicates high market concentration.

  True
• High market concentration can lead to reduced consumer benefits.


  True
• In a high market concentration, a small number of firms control a large market share.


  True
• The Herfindahl-Hirschman Index (HHI) is more complex to calculate than the Four-Firm Concentration Ratio.

  True
• High market concentration can lead to reduced consumer benefits due to less competition.


  True
• A Gini coefficient of 0.6 suggests significant market share inequality.


  True
• What is one advantage of low market concentration for consumers?

  Competitive pricing
• Low market concentration typically leads to reduced consumer choice.

  False
• What does high market concentration imply about the number of firms in the market?

  A few firms control
• Order the key indicators of market concentration from simplest to most complex:

  1️⃣ Four-Firm Concentration Ratio

  2️⃣ Herfindahl-Hirschman Index (HHI)

  3️⃣ Lorenz Curve and Gini Coefficient
• What is the Gini coefficient used to measure in market share equality?

  Inequality
• Low market concentration promotes better pricing and increased product quality
• Low market concentration promotes competition, leading to better pricing and increased innovation
• Low market concentration can result in less investment in long-term growth
• Low market concentration is characterized by many firms competing for market share


  True
• High market concentration can lead to higher prices and reduced consumer choice
• The Herfindahl-Hirschman Index (HHI) is calculated using the sum of the squares of each firm's market share
• Aircraft manufacturing is an example of an industry with low market concentration.

  False
• The Four-Firm Concentration Ratio is a key indicator of market concentration.

  True
• The Four-Firm Concentration Ratio only considers the top four firms, ignoring smaller competitors
• The Lorenz Curve and Gini Coefficient provide a statistical measure of market share equality
• Low market concentration promotes better pricing, improved quality, and increased innovation
• A low market concentration indicates that many firms share the market
• The HHI takes into account all firms, making it sensitive to market share differences
• What does an HHI of 2,500 indicate in terms of market concentration?

  High concentration
• A high market concentration allows dominant firms to control prices
• Match the market concentration with its example industry:

  High market concentration ↔️ Aircraft manufacturing

  Low market concentration ↔️ Restaurant chains
• High market concentration reduces consumer choice due to dominant firms' power
• The soft drink bottling industry is an example of high market concentration.


  True
• The Four-Firm Concentration Ratio only considers the top four firms
• High market concentration can lead to reduced innovation due to lack of competition.


  True
• What does high market concentration mean in terms of firm control and competition?

  Small number of firms control a large share
• Match the type of market concentration with its advantages or disadvantages:

  High ↔️ Economies of scale reduce costs

  Low ↔️ Competitive pricing benefits consumers
• What is an example industry with high market concentration?

  Aircraft manufacturing
• How does low market concentration typically benefit consumers?

  Lower prices and product variety
• Competitive pricing is a characteristic of low market concentration


  True
• What does market concentration measure in terms of firm dominance?

  The extent of firm dominance