Concentration Ratio

CFA Level I
#1

Which choice is true? 3-Firm Concentration Ratio, Herfindahl Index Industry A: 40%, 0.095 Industry B: 75%, 0.1938 A. Industry A can be charaterized as a Oligopolistic industry. B. Firms in Industry A would have a greater coordination than firms in Industry B. C. Industry A has more equivalent firms than Industry B. D. Product differentiation strategy would be more appropriate for firms in Industry B than for firms in Industry A. Any suggestions? Thx.

#2

I’d go with C. A is out. Industry A seems to be more monopolistic competition. B is out. Industry A would have LESS corrdination than firms in B, an oligopoly. D is out. Since a is a monopolistic competition, those firms require marketing efforts to differentiate.

#3

Well if you figure out how many firms are in each industry you can rule out question A. Industry A = 1/.095 = about 10.5 firms Industry B = 1/.1938 = 5.16 firms Either B or C

#4

What’s the answer?

#5

C is what I’m going with…

#6

c

#7

C. Even with a CR of 40%, that gives the industry a competitive structure which means more firms can be of equal size.

#8

That’s what I was thinking. What do they mean by coordination?

#9

coordination probably means cooperation, like what firms in an oligopoly would do

#10

likely a case where decisions of firm likely effects decisions of other firms such as in oligopoly or Airline industry.

#11

Thanks for the explanation. So if that’s the case the answer is def C then

#12

Thanks for all of your help!

#13

what about “D”. If B, which has an index of greater than 1.8 which means that there is a high level of concentration and competition, then firms would want to pursue product differentiation.

#14

gazhoo Wrote: ------------------------------------------------------- > what about “D”. If B, which has an index of > greater than 1.8 which means that there is a high > level of concentration and competition, then firms > would want to pursue product differentiation. “there is a high level of concentration and competition” is incorrect. Concentration yes, competition not neccesarily so. the 75% 3 firm concentration raio indicates an oligpoly environment for industry B, not monpolistic competition

#15

so c is correct?