Economics Chapter on Market Concentration

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What does a low concentration in an industry indicate?

Prices are consistently rising.

Profit margins are significantly high.

The market is highly competitive. (correct)

A few firms dominate the market.

What is one concern associated with high market concentration?

Potential collusion among firms to raise prices. (correct)

Improved product variety for consumers.

Increased innovation among competitors.

Lower production costs for consumers.

What is the primary aim of dumping in international trade?

To diversify the range of available products.

To improve product quality in the home market.

To establish a monopoly in foreign markets. (correct)

To increase production costs abroad.

Which of the following companies is NOT mentioned as part of the major players in the food industry?

Walmart Signup and view all the answers

How does market concentration typically affect prices and productivity growth?

It corresponds to lower prices and higher productivity growth. Signup and view all the answers

What term refers to the integration of economic, financial, trade, and communications across the globe?

Globalization Signup and view all the answers

Which continent has the highest percentage of the world's population?

Asia Signup and view all the answers

What does importing entail?

Buying products from another country Signup and view all the answers

What is the primary goal of modern tariffs?

To protect domestic producers and wage rates Signup and view all the answers

What is the principle of comparative advantage primarily concerned with?

Specializing in products with lower opportunity costs Signup and view all the answers

What is a key characteristic of absolute advantage?

Monopoly on production of a specific product Signup and view all the answers

How does trade protectionism affect local employment?

It may decrease unemployment temporarily Signup and view all the answers

Which of these industries is likely to be among the biggest exporting industries globally?

Automotive Signup and view all the answers

What is an import quota?

A limit on the volume of goods that can be imported Signup and view all the answers

Opportunity cost can be defined as:

The ratio of quantities of two goods produced by a country Signup and view all the answers

Which of the following is NOT considered a tool of protectionism?

Increased foreign competition Signup and view all the answers

How do anti-dumping laws generally function in practice?

They impose tariffs on foreign exporters Signup and view all the answers

Which of the following best describes free trade?

Trade among nations without barriers Signup and view all the answers

What role do administrative barriers play in trade protectionism?

They introduce hurdles under the guise of regulations Signup and view all the answers

What is the purpose of export subsidies?

To make domestic products cheaper internationally Signup and view all the answers

How can trade protection indirectly affect the overall progress of society?

By reducing the competitive pressure on local industries Signup and view all the answers

What is the primary advantage of licensing for a firm?

It generates revenue without the need for production and marketing costs. Signup and view all the answers

What disadvantage do firms face when entering licensing agreements?

They are required to grant rights for a long duration. Signup and view all the answers

Which of the following is NOT a common example of licensed products?

Fast food franchises opening in new territories. Signup and view all the answers

Which scenario best illustrates social dumping?

Retailers are mandated to lower the prices of essential goods like masks. Signup and view all the answers

How does Coca-Cola utilize licensing effectively?

By creating products that align with local tastes and preferences. Signup and view all the answers

What is a key characteristic of franchising compared to licensing?

Franchising involves selling a business model instead of products. Signup and view all the answers

Which of the following statements is true regarding licensing agreements?

Foreign licensees usually have to source start-up supplies from the licensing firm. Signup and view all the answers

In what way must franchisors adapt their business model for different countries?

Franchisors need to adjust products or services to fit local markets. Signup and view all the answers

What is one main effect of export subsidies in a country with floating exchange rates?

They have effects similar to import subsidies. Signup and view all the answers

What is a potential long-term consequence of a government intervening in the foreign exchange market to lower its currency's value?

Higher inflation leading to increased real costs of exports. Signup and view all the answers

How can national patent systems be perceived in terms of trade policies?

As a form of protectionist trade policy. Signup and view all the answers

What advantage might states gain from adhering to a worldwide patent system?

Recognition of 'good citizenship' in international trade. Signup and view all the answers

What does the Buy American Act promote?

The preference for US-made products in government purchases. Signup and view all the answers

Which of the following is viewed as a form of protectionism by some commentators?

Imposing labor or environmental standards. Signup and view all the answers

What is a common characteristic of restrictive certification procedures on imports?

They are perceived as protectionist measures. Signup and view all the answers

What is one possible outcome of a successful 'Buy American' campaign?

Promotion of domestic products and industries. Signup and view all the answers

What is a primary advantage of contract manufacturing for companies entering new markets?

It minimizes heavy start-up costs. Signup and view all the answers

What is a common disadvantage of international joint ventures?

The potential for technology theft by one of the partners. Signup and view all the answers

Which of the following best describes a strategic alliance?

A long-term collaboration without shared costs or profits. Signup and view all the answers

In which industry is the term 'foundry model' specifically used?

Semiconductor industry. Signup and view all the answers

Which of the following is NOT a benefit of international joint ventures?

Reduction of competition between partners. Signup and view all the answers

What is typically a characteristic of contract manufacturers in the pharmaceutical industry?

They are known as contract manufacturing organizations (CMOs). Signup and view all the answers

What type of contract manufacturing is commonly used in industries like food and personal care?

Private-label production. Signup and view all the answers

Why might companies choose to use contract manufacturing temporarily?

To meet unexpected increases in orders. Signup and view all the answers

Study Notes

Globalization

Globalization is the worldwide movement toward economic, financial, trade, and communications integration.
Information technologies play a crucial role in this process.

World Population

Asia accounts for 60.2% of the world's population.
Africa's population constitutes 14.9%.
Europe has 10.7% of the global population.
North America holds 7.4% of the world's population.
South America comprises 6.3% of the global population.
Australia holds 0.5% of the global population.

Importing and Exporting

Importing involves buying products from another country.
Exporting entails selling products to another country.

Leading Import Countries (2023)

The data (in billions of U.S. dollars) are displayed for various countries.

Leading Export Countries (2023)

The data (in billions of U.S. dollars) are displayed for various countries.

Top 10 Global Biggest Exporting Industries (2024)

Global Oil & Gas Exploration & Production: $1,175.6B
Global Car & Automobile Manufacturing: $815.7B
Global Pharmaceuticals & Medicine Manufacturing: $639.6B
Global Plastic Product & Packaging Manufacturing: $566.7B
Global Apparel Manufacturing: $489.6B
Global Auto Parts & Accessories Manufacturing: $488.6B
Global Consumer Electronics Manufacturing: $353.0B
Global Semiconductor & Electronic Parts Manufacturing: $242.9B
Global Paper & Pulp Mills: $220.4B
Global Iron Ore Mining: $215.8B

Biggest Companies in Global Oil & Gas Exploration & Production (2024)

This section contains data regarding Company, Market Share (%), Revenue ($m), Profit ($m), and Profit Margin (%).

Biggest Companies in Global Car & Automobile Manufacturing (2024)

This section contains data regarding Company, Market Share (%), Revenue ($m), Profit ($m), and Profit Margin (%).

Free Trade

Pros:
- Global market expands (over 6.9 billion potential customers).
- Increased productivity from comparative advantage.
- Keeps prices down due to competition and imports.
- Innovations encouraged.
- Foreign investments increase.
Cons:
- Potential job losses (domestic workers).
- Lower wages for workers.
- Domestic companies lose competitive edge because of lower-cost overseas operations.

Comparative and Absolute Advantages

Comparative advantage: A country should focus on producing and selling goods it can produce most efficiently, importing others.
Absolute advantage: A country has a monopoly on producing a specific product or excels in its production compared to all other countries.

Examples of Comparative Advantages

China: Producing simple consumer goods at low cost.
United States: Specialized, capital-intensive labor.

Examples of Absolute Advantages

Canada: Producing beef with fewer ranchers compared to Argentina.

Monopoly Examples

Railways
Luxxotica
Microsoft
AB InBev
Google
Patents
AT&T
Facebook

Against Monopolies

Monopolies are broken up by government action to prevent unfair business practices.
The Sherman Antitrust Act (1890) outlawed monopolistic practices.
The breakup of AT&T in 1982 is an example of such action.

Market Structures

Monopolistic competition: Many firms, small market share, differentiated products.
Oligopoly: Few firms, significant market share, sometimes homogeneous or differentiated products.
Duopoly: A special case of oligopoly with two firms.
Monopsony: Single buyer in a market.
Oligopsony: Many sellers, a few buyers.
Monopoly: Single provider of a product or service.
Natural monopoly: Economies of scale lead to continually increasing efficiency as the firm's size grows.
Perfect competition: Theoretical market with no barriers to entry, unlimited producers, consumers, perfectly elastic demand.

Measuring Global Trade

Balance of trade: Total value of exports compared to imports.
Trade surplus: Exports exceed imports.
Trade deficit: Imports exceed exports.
Balance of payments: Difference between money coming into and leaving a country (exports/imports + other factors).

Which Countries Are Net Exporters & Importers (2022)

Exporter data (U.S. dollars) is displayed for various countries.
Importer data (U.S. dollars) is displayed for various countries.

Global Toy Production

China produces and exports 80% of the world's toys.
The U.S. imports most of its toys from China.

Top U.S. Trading Partners (2010)

Various countries along with their respective total trade values in billions of U.S. dollars are documented

Reasons for Industry Concentration

Concentration refers to the degree to which a small number of firms dominate market production.
Competitive markets that drive down profit margins, and efficient rivals will result in higher productivity and lower prices. This increase in concentration may occur.
Firms frequently cooperate when a small number control most of the output of an industry, instead of competing.

Examples of Top Food Companies

Data regarding various companies (Nestle, PepsiCo, Unilever, Coca-Cola, etc.), along with their home countries, sales, and employee numbers is available for review.

Dumping

Dumping involves selling products below cost in foreign markets to overcome competition or gain a foothold in new markets, potentially creating a monopoly.
It's considered a predatory practice.
Countries like China, Brazil, and Russia have faced penalties for dumping steel in the U.S.
Dumping can occur at the behest of governmental subsidies, which reduce the price below cost for imports/exports.
Anti-dumping legislations are employed to counteract this practice.
There can be advantages and disadvantages to countries initiating or responding to dumping.

Types of Dumping

Predatory dumping: Deliberate practice of driving out competitors before setting market prices.
Official dumping: Enabling lower prices through governmental policies such as tax exemptions, subsidies.
Social dumping: Firms that manipulate the market of essential goods in order to control the price for consumers.

Licensing

Licensing allows a firm to use another company's product or services, ideas, technology, brand name, or intellectual property in exchange for a fee.
Firms that license benefit from gaining revenues without extensive product development and market introduction costs, or time.
This method facilitates entry into new markets.

Franchising

Franchising is a contractual agreement wherein a franchisor (firm with the business process/service) grants a franchisee (new partner firm) the right to operate under a brand name and use services provided by the franchisor in a given territory.

Contract Manufacturing

Contract Manufacturing enables a firm to test a new market without high startup costs by outsourcing production to another.
This allows a firm to concentrate on their core operations and to meet unexpected increases in order amounts.
The practice is common in various industries (aerospace, semiconductor, food, etc.).

International Joint Ventures and Strategic Alliances

International joint ventures (IJVs) occur when two or more companies (often from different countries) collaborate to undertake a major project.
IJV's present advantages such as technology sharing, risk reduction, entry into new markets without existing regulations.
Joint ventures may also face challenges like becoming too large to be flexible, technology obsolescence and potential loss of core advantages, if one company learns from another's techniques and then utilizes this knowledge in their favor.

Foreign Direct Investment (FDI)

Companies acquire permanent property/businesses in foreign countries through Foreign Direct Investment (FDI).
FDI takes place in different formats, such as a subsidiary.
Subsidiaries operate as domestic firms in the foreign country, but must adhere to both the laws of the initial firm's country and the new country's laws.
Multinational organizations (MNCs) establish manufacturing and sales operations in multiple countries.

Main Forces in Global Markets (PEST)

Political, Legal, and Regulatory Forces
Economic and Finance Forces
Sociocultural Forces
Technological, Physical and Environmental Forces

Protectionism

Trade protectionism is the imposition of high tariffs or quotas on foreign imports, to shield domestic industries from competition.
Trade protectionism benefits local industries, enhances government revenue, and addresses unemployment concerns.
It can lead to disadvantages including stifled development of local industries and limited consumer options.

Tools of Protectionism

Tariffs (taxes on imports),
Import quotas (limits on imports),
Restrictions on foreign investment,
Administrative barriers,
Anti-dumping legislation, and
Direct subsidies.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Test your knowledge on key concepts in economics related to market concentration, international trade, and protectionism. This quiz covers essential definitions and impacts of various economic strategies and terms. Challenge yourself to understand how these concepts apply in real-world scenarios.