Flashcards in Term 1 Deck (53)

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1

## What are the four Hannah and Kay Criteria?

###
A steeper Cumulative Market Share = higher concentration

A transfer of sales will increase concentration

If a new firm enters, concentration decreases

A merger will increase concentration

2

## What are some popular measures of concentration?

###
Reciprocal

K-Firm Concentration Ratio

Hirschamn-Herfindahl Index

Hannah-Kay Index

3

## Discuss the Reciprocal of firm numbers?

###
1'N

Easy to calculate but attaches zero weight to size inequality

4

## Discuss the K firm concentration ratio?

###
Sum the market share of top K firms

Easy to calculate

But sales transfers are not captured

5

## Discuss the Hirschman-Herfindahl Index?

###
Sum the square of the market share

1/H gives a numbers equivalent

Satisfies Hannah-Kay

Cannot measure all firms

6

## Discuss the Hannah-Kay index?

###
Sum S^a ^(1/1-a)

Gives a larger weight to larger firms

Higher numbers imply lower concentration

7

## Discuss international trade?

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C=Qx-Xx / Q-X+M

Qx=Total Sales of x largest

Xx = Exports of x Largest

8

## What is the Deterministic approach to market concentration?

###
Emphasises the role of technology as a determinant of market concentration

Fixed costs and demand

9

## How do you calculate N* in a U shaped curve market?

###
=Qc/Q*

Qc is demand

Q is bottom of LRAC

10

## How do you calculate N* ibn a L shaped curve market?

### Qc/MES

11

## What effect do barriers to entry have?

###
They will raise P>Pc, reducing demand

Thus concentration will increase

12

## Discuss the exogenous fixed cost model

###
Profit = (N, S, T)

N is number of firms (negative)

S is market demand (posititve)

Tao is measure of price competition(negative)

13

## What is the equilbrium in an exogenous model, how does changing tao and fixed costs effect it?

###
All firms make zero net profit after fixed costs

If Fixed costs increase, N falls

If Tao increases, N falls

14

## Discuss the endogenous fixed costs model?

###
Profit = (N, S, T, Ai, A-i)

N is number of firms (negative)

S is market demand (posititve)

Tao is measure of price competition(negative)

A is own firms fixed costs (Positive - advertising)

A-i is other firms fixed costs (negative)

15

## What is the equilbrium in an endogenous model? How does Changing fixed costs effect it?

###
All firms do same level of A and make zero profit

An increase in A reduces number of firms

16

## What is the contradiction in the endogenous model?

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An incrase in Tao should reduce number of firms

However, tao increasing will cause fixed costs to increase, reducing the number of firms

17

## What is the Sutton Lower Bound

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CR(K) >= (K/N)(1-Ln(K/N)

CR is concentration ratio

K is K

N is total number

The concentration ratio must exceed the RHS, or prices are not high enough to give returns on fixed costs

18

## What is the Gibrat Process?

### The log of the firms sizes in two periods follows a random normally distributed error

19

## Describe the Gibrat process graphically?

###
A left skew indicates that most firms do not grow but some grow very well

The variance increases over time

20

## How do you compare two industries

### The lower the peak, the more concentrated

21

## What is the formula for the Gibrats CR5?

###
CR5 = (1-y)^1/a X {5a/a-1 X MES/Q} ^a-1/a

a=1/(1-0)

0 is the rate at which firms move above the MES

Y is the share of firms that are suboptimally scaled

MES/Q is the market size

22

## How do the variables effect Gibrats CR5?

###
An increasing function of MES/Q

A decreasing funciton of y

A decreasing function of 0

23

## What is the Cowling-Waterson Model?

### Assumes no patrties have market powers

24

## What is the industry in the CW model?

###
Pi+F/R=H(1+u)/n

LHS is profit to revenue

H is HH

u is HH*Lamda / HH

n isped

25

## What is the firm in the CW model?

###
p-c/p=s(1+lamda)/n

26

## What are some special cases of the CW model?

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Perfect Competition:

H=0 therefore LHS = 0

Bertrand Competition

Lamda = -1 thefore LHS = 0

Monopoly

N=H=1 therefore LHS = 1/n

Cournot

Lamda = 0 therefore Industry and Firm = share / n

27

## Discuss Collusion in the CW Model

### Works like a monopoly, therefore profit = 1/n

28

## Discuss the Clarke Davis model

### Firms decide their output based on an implicit degree of collusion

29

## How do you solve a game based on dominance?

### Remove a stratergy that is beaten by all others until one left

30