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Introduction
Analisis kompetisi perusahaan-perusahaan, mencakup
key-elements of industry structure
The most important characteristics of industry
structure include the number and size distribution of
rms, the existence and height of barriers to entry and
exit, and the degree of product differentiation
Seller concentration refers to the rst of these
elements: the number and size distribution of rms.
In empirical research in industrial organization, seller
concentration is probably the most widely used
indicator of industry structure
The product market denition should include all products that are
close substitutes for one another, both in consumption and in
production.
Goods 1 and 2 are substitutes in consumption if an increase in the
price of Good 2 causes consumers to switch from Good 2 to Good
1.
The degree of consumer substitution between Goods 1 and 2 can
be measured using the cross-price elasticity of demand
Good 1s elasticity of demand with respect to a change in the price
of Good 2 is:
A large and positive cross-price elasticity of demand indicates that the two goods in
question are close substitutes in consumption (for example, butter and margarine).
In contrast, a large and negative cross-price elasticity of demand indicates that the
two goods are close complements (for example, camera and lm). However, this
could also imply that they should be considered part of the same industry. CD
players and ampliers might be grouped together as part of the hi- equipment
industry. But what about cars and petrol? These goods are also complementary,
but would it be sensible to include motor manufacturers and oil companies in the
same industry group?
Good 1 produced by rm A, and Good 2 produced with similar technology by rm
B are substitutes in production if an increase in the price of Good 1 causes rm B
to switch production from Good 2 to Good 1.
In this case, rms A and B are close competitors, even if from a consumers
perspective Goods 1 and 2 are not close substitutes. For example, Good 1 might be
cars and Good 2 might be military tanks.
No consumer would decide to buy a tank simply because there has been an
increase in the price of cars. But on receiving the same price decide to switch to
car production.
The degree of producer substitution between Goods 1 and 2 can be measured
using the cross-price elasticity of supply. Good 1s elasticity of supply with respect
to a change in the price of Good 2 is: signal, a tank producer might decide to
switch to car production. The degree of producer substitution between Goods 1
and 2 can be measured using the cross-price elasticity of supply.
Good 1s elasticity of supply with respect to a change in the price of Good 2 is:
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Measures of concentration
Seller concentration, an indicator of the
number and size distribution of rms, can be
measured at two levels:
1) for all rms that form part of an economy,
located within some specic geographical
boundary;
2) for all rms classied as members of some
industry or market, again located within some
specic geographical boundary.
Concentration Ratio
The last two points are illustrated in Table 6.8. For I1 the contribution to the HK(1.5)
index of rm 1 (the largest rm) is 45.8 per cent (0.2003 out of 0.4376). But rm 1s
contribution to the HK(2.5) index is 63.8 per cent (0.0686 out of 0.1076). Our earlier
comments about the favourable properties of the HH index apply in equal measure to
the HK() index. Furthermore, the larger the value of , the smaller the degree of
inaccuracy if the HK() index is calculated using accurate individual data for the largest
rms, but estimated data for the smaller rms.
Entropy coefficient
The minimum possible value is RE = 0 for a monopoly, and the maximum possible
value is RE = 1 for an industry comprising N equal-sized rms.
For the purposes of calculating VL, the rm size data are expressed in logarithmic form
for the following reasons:
Most industries have a highly skewed rm size distribution, with large numbers of
small rms, fewer medium-sized rms and very few large rms. The variance of the
(untransformed) rm size data would therefore tend to be unduly inuenced by the
data for the largest rms. The log-transformation reduces or eliminates the skewness
in the original distribution, enabling VL to provide a more reasonable measure of
inequality across the entire rm size distribution.
The variance of the (untransformed) rm size data would be inuenced by the scaling
or units of measurement of the data. VL, in contrast, is unaffected by scaling. For
example, if ination caused the reported sales data of all rms to increase by 10 per
cent, the variance of the (untransformed) sales data would increase, but VL would be
unaffected. In this case, there is no change in concentration or dispersion because the
sales of all rms are increased in the same proportions. VL reects this situation
accurately.
The Lorenz curve can be used to dene a concentration measure due to Gini (1912),
known as the Gini coefcient. With reference to Figure 6.1, the Gini coefcient is
dened as follows: