Economics Chapter on Market Concentration

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.

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.