Concentration ratios are typically a firm’s share of domestic production. If the

Question

Concentration ratios are typically a firm’s share of domestic production. If the United States engages in international trade, was such concentration measures lose meaning? Could this affect explaining the vanishing of the price concentration effect over time? Concentration ratios are typically a firm’s share of domestic production. If the United States engages in international trade, was such concentration measures lose meaning? Could this affect explaining the vanishing of the price concentration effect over time?

Explanation / Answer

Concentration ratios represent a firm's share of domestic production which includes sales in the domestic and foreign market. It mainly includes the top five big firms which capture the majority of the market. If the US engages in international trades means import sales increase in a country would reduce concentration ratio as markup of price over average cost would decrease leading to a lower competitive price. As one knows that increasing international trade would make domestic firms face greater competition from firms abroad so they will be less interested in capturing the entire market rather maintain their normal profits.

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