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Defining a market    is often controversial. For example, Microsoft in the early 2000s had a dominant share of the software for computer operating systems. However, in the total market for all computer software and services, including everything from games to scientific programs, the Microsoft share was only about 14% in 2014. A narrowly defined market will tend to make concentration appear higher, while a broadly defined market will tend to make it appear smaller.

There are two especially important shifts affecting how markets are defined in recent decades: one centers on technology and the other centers on globalization    . In addition, these two shifts are interconnected. With the vast improvement in communications technologies, including the development of the Internet, a consumer can order books or pet supplies from all over the country or the world. As a result, the degree of competition many local retail businesses face has increased. The same effect may operate even more strongly in markets for business supplies, where so-called “business-to-business” websites can allow buyers and suppliers from anywhere in the world to find each other.

Globalization has changed the boundaries of markets. As recently as the 1970s, it was common for measurements of concentration ratios and HHIs to stop at national borders. Now, many industries find that their competition comes from the global market. A few decades ago, three companies, General Motors, Ford, and Chrysler, dominated the U.S. auto market. By 2014, however, these three firms were making less than half of U.S. auto sales, and facing competition from well-known car manufacturers such as Toyota, Honda, Nissan, Volkswagen, Mitsubishi, and Mazda. When HHIs are calculated with a global perspective, concentration in most major industries—including cars—is lower than in a purely domestic context.

Because attempting to define a particular market can be difficult and controversial, the Federal Trade Commission has begun to look less at market share and more at the data on actual competition between businesses. For example, in February 2007, Whole Foods Market and Wild Oats Market announced that they wished to merge. These were the two largest companies in the market that the government defined as “premium natural and organic supermarket chains.” However, one could also argue that they were two relatively small companies in the broader market for all stores that sell groceries or specialty food products.

Rather than relying on a market definition, the government antitrust regulators looked at detailed evidence on profits and prices for specific stores in different cities, both before and after other competitive stores entered or exited. Based on that evidence, the Federal Trade Commission decided to block the merger. After two years of legal battles, the merger was eventually allowed in 2009 under the conditions that Whole Foods sell off the Wild Oats brand name and a number of individual stores, to preserve competition in certain local markets. For more on the difficulties of defining markets, refer to Monopoly .

This new approach to antitrust regulation involves detailed analysis of specific markets and companies, instead of defining a market and counting up total sales. A common starting point is for antitrust regulators to use statistical tools and real-world evidence to estimate the demand curves and supply curves faced by the firms that are proposing the merger. A second step is to specify how competition occurs in this specific industry. Some possibilities include competing to cut prices, to raise output, to build a brand name through advertising, and to build a reputation for good service or high quality. With these pieces of the puzzle in place, it is then possible to build a statistical model that estimates the likely outcome for consumers if the two firms are allowed to merge. Of course, these models do require some degree of subjective judgment, and so they can become the subject of legal disputes between the antitrust authorities and the companies that wish to merge.

Key concepts and summary

A corporate merger involves two private firms joining together. An acquisition refers to one firm buying another firm. In either case, two formerly independent firms become one firm. Antitrust laws seek to ensure active competition in markets, sometimes by preventing large firms from forming through mergers and acquisitions, sometimes by regulating business practices that might restrict competition, and sometimes by breaking up large firms into smaller competitors.

A four-firm concentration ratio is one way of measuring the extent of competition in a market. It is calculated by adding the market shares—that is, the percentage of total sales—of the four largest firms in the market. A Herfindahl-Hirschman Index (HHI) is another way of measuring the extent of competition in a market. It is calculated by taking the market shares of all firms in the market, squaring them, and then summing the total.

The forces of globalization and new communications and information technology have increased the level of competition faced by many firms by increasing the amount of competition from other regions and countries.

Problems

Use [link] to calculate the four-firm concentration ratio for the U.S. auto market. Does this indicate a concentrated market or not?

(Source: http://www.zacks.com/commentary/27690/auto-industry-stock-outlook-june-2013)
Global auto manufacturers with top four u.s. market share, june 2013
GM 19%
Ford 17%
Toyota 14%
Chrysler 11%
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Use [link] and [link] to calculate the Herfindal-Hirschman Index for the U.S. auto market. Would the FTC approve a merger between GM and Ford?

(Source: http://www.zacks.com/commentary/27690/auto-industry-stock-outlook-june-2013)
Global auto manufacturers with additional u.s. market share, june 2013
Honda 10%
Nissan 7%
Hyundai 5%
Kia 4%
Subaru 3%
Volkswagen 3%
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Questions & Answers

Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each firm in the cartel produces a near-identical product like OPEC and petroleum? What if each firm produces a somewhat different product?
James Reply
no
Sadaf
what is supply
Mizta Reply
what is opportunity cost
Mizta
The opportunity gained interms of opportunity lost is known as opportunity cost Or The second best alternative use of resources
Mir
forgone alternative: like forgoing Something our of two to buy one
Tam-Waribo
what is macro economic s
Addo Reply
macroeconomics is the study of economic as a whole level.
Gafar
meaning of positive science
Sumit Reply
positive science it is focused on facts and cause and effect and behavioural relationship and include developmental testing in economic theoreis.
Gafar
what is inflation
Sama Reply
inflation is the general price increase of goods and services in an economy.
tesfie
Inflation is the persistent rise in the general price level
T-Max
inflation is characterized by increase in the general price of goods and services. when there is too much money in circulation. increase in demand of goods pursuing fewer goods. when purchasing power of money decreases .
Ejikeme
inflation is the persistent rise general price level
Habeeb
inflation is the persistent increase in price
Machall
hi
Rafiu
yes
boston
hi
Ayaan
how are you
Ayaan
increase in the general level of price...
sade
what is deflation
Sele
is the gradual decrease of currency exchange in a country.
Gafar
why ecnomics important ? give answer plz
Saifullah
Because is a field of science study that reflects on our day to day activities with human behavior.
ANSU
different between demand and quantity demand
Farhan Reply
No difference
MansoorAfghan
demand is the overall demand for it
MansoorAfghan
actually theres no difference
MansoorAfghan
quantity demanded is used in Equilibrium of d and s
MansoorAfghan
for evrything else u use deman
MansoorAfghan
the difference of it is that when demand simply denotes the willingness and a person's ability to purchase. And as against quantity demand represent the amount of an economic good or services desire by a consumer at a fixed price .☺
Gafar
how to calculate inflation
Richard Reply
Explain the factors that have led to high quantity demanded
Ogwang Reply
price of the product increase of price substitute product as people shift to cheap one
Black
what are the methods used by trade union to increase wages of their members?
Black Reply
strike
Pearl
the size of the commodity
Mensah
increase demand of labour decrease supply of labour
Black
I do support your answer Jackel.
keshav
but how do they do it?
Black
by increasing more labour and reduced the suppliers
Mensah
they can not increase labour, they increase demand of labour.
Black
how do they increase demand for labor?
Black
by analyzing the market equilibrium , cost reduction and cost control , savings in time .
yash
decreasing supply of labour are achieved through training and certification that require for you to employed, you must have certificate, also trade union encouraged government to restrict migration into the country causing shortage of labour supply. Note that the aim of union is to enhance life
Black
objective of union: better working conditions, liveable wage, protect member from unfair treatment which are done through negotiations betweens representative and management. known as collective bargaining.
Black
what is the nature of economics?
Tyscar Reply
economics is a social science since it seeks to solve social problem of scarcity
Jamal
main concerns is the decision individuals make on the allocation of scarce resources among the competing wants
Black
in the short run firm produce a positive as long as the price is larger than what?
yoel Reply
what is economic
Bah Reply
economics is the study of managing the resources in order to maximize the needs and satisfy the wants to a great extent in a regulated set-up..
Muhammad
One explanation for deviation when there is no impact on balance of trade
Shaneel
economic s is a social science that deals with human behavior as a relationship between ends and scarce means which has alternative uses
Derokiz
economic is a study of mankind in ordinary business of life
FIDELIS
economics it is the study of social science that deals with human behaviour as relationship between ends and scarce means which have alternative uses
salam
Economic is the use of scarce recourses to attain economic dough effectively and efficiently.
Addo
economics is the study of how humans make decisions in the face of scarcity. Eg. family decision, individual decision, and societal decision.
Gafar
what is diminishing returns
Blessed Reply
what is the difference between calculus linear equation and derivative?
Bti
whats inferior goods?
jaamac Reply
Good having low quality , also known as giffin goods. When income increases people shift to better quality goods . Hence having a negative effect on inferior goods rather than positive relation ( ie when income increases demand increases but not in case of inferior goods ) example wheat and bajra .
yash
What do u understand by the word ENDS in professor Lord L C Robinson definition of Economics?
Kaba Reply
I understand that ENDS is the unlimited needs of human. But we have limited resources to achieve our unlimited needs/wants. Thank you.
Midhun

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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