Page 35 - FINAL CFA SLIDES DECEMBER 2018 DAY 5

Session Unit 4:
LOS 15.g: Describe the use and limitations
of concentration measures in identifying 15. The Firm & Market Structures
market structure., p.41.

How do we measure monopoly or market power? Regulators/Anti Trust..

Could measure elasticity but its tough! Why?

So lets use Concentration (Ratio) Measures:

N-firm concentration ratio = sum or the % market shares of the largest N firms in a market.

Be4 merger, the 4-firm CR

= 25 + 15 + 15 + 10 = 65%.

After Acme + Blake merger = 40%, the 4-firm CR
= 40 + 15 + 10 + 5 = 70% Meaning?

4-firm CR increase is small (65% to 70%) but market power of

the largest has increased hugely from 25% to 40%.

Adv. Simple to calculate and understand

Disadv: Relatively insensitive to mergers of 2 firms with

large market shares.

Try Herfindahl-Hirschman Index (HHI).