Best Answer - Chosen by Voters
Simply put, the higher the CR the more monopolistic an industry is (or in this case oligopolistic). The 4 firm concentration ratio is usually the standard measure of this. In the example w/ 30% CR you can assume there are likely low barriers to entry and the industry is very competitive. If demand increases in this industry and pushes prices up in the short-term you will see more companies enter in the long term. Since the price will come back down it implies a competitive industry.
The second example is a much less competitive industry. Since there are barriers to entry or competitiveness (i.e. economies of scale/scope) you will likely have a long term increase in price since more companies won't come in to push prices down via competition. It is unlikely a small firm can survive in the second industry with a price leadership model.
1 answer