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All of the following are considered to be problems associated with the use of concentration ratios to measure market power except: A) two different markets with the same concentration ratio may have very different distributions of market share among firms used to calculate the concentration ratio
All of the following are considered to be problems associated with the use of concentration ratios to measure market power except:
A) two different markets with the same concentration ratio may have very different distributions of market share among firms used to calculate the concentration ratio.
B) concentration ratios are often based on national statistics and may not reflect substantial concentration in a market at a more localized level.
C) the market definitions used in their construction may be arbitrary.
D) consideration of exports and imports generally causes concentration ratios to be overstated.
Expert Solution
The concentration ratio refers to the ratio, which focuses on indicating the firm's size related to the industry they belong to. There are several problems connected with the use of these ratios, which include that they are based on the national statistics and does not concentrate on reflecting the substantial concentration at a local level in the market. The consideration related to the import and export leads to overstating of the ratios. Thus, the definitions used in the concentration ratios are not arbitrary or random. (Correct answer: C)
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