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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?

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?

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

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?

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

How do you solve a game via Nash?

Choose best given opponents strategy