Page 313 - The Case Lab Book

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2: Industry Analysis

Case studies are generally based within an industry and within any industry
there are only a few dominant players. Numerically there are likely to be
four or less who control 80% or more of the market. It is against this that
the target company is measured.

Industry structure is often measured by computing the Four-Firm
Concentration Ratio. The concentration ratio of an industry is used as an
indicator of the relative size of firms in relation to the industry as a whole.
This may also assist in determining the market form of the industry. One
commonly used concentration ratio is the four-firm concentration ratio,
which consists of the market share, as a percentage, of the four largest
firms in the industry.
There are four major types of market structures: Perfect competition, with a
very low concentration ratio, is a market structure with many firms, each
selling an identical product to many buyers. There are no restrictions on
entry of new firms to the industry. With thousands of firms having a market
share there is little power amongst any few firms. Monopolistic competition,
below 40% for the four-firm measurement, is a market structure with many
firms; each firm produces similar but slightly different products. Each firm
possesses an element of market power with no restrictions on entry of new
firms to the industry markets in which numerous firms supply products
which are each slightly different. Oligopoly, above 40% for the four-firm
measurement, is a market structure in which a small number of firms
compete. The firms might produce almost identical products. The barriers
limiting entry into the market the market power lies within 4 top producing

firms. Monopoly, with a near-100% four-firm measurement because there is
only one market holding the majority of the market power, is a market
structure in which one firm produces the entire output of the industry There
are no close substitutes for the product. There are barriers to entry that
protect the firm from competition by entering firms.
An industry with 20 fi ...