2. Foundations in Economics.pdf

Key Concepts to Understand the Media Economy PBF3164 Media Economics Faculty of Education, Language and Communication UNIMAS  š The different types of economies found around the globe; š How t...

Key Concepts to Understand the Media Economy PBF3164 Media Economics Faculty of Education, Language and Communication UNIMAS  š The different types of economies found around the globe; š How to use the concepts of supply and demand, price, elasticity, and cross- elasticity to understand the functions In this lecture, of the media economy; you will learn: š The differences between wants, needs, utility, and value; š How allocation concepts, vertical and horizontal integration, and competition and concentration are used to understand the media economy  Types of Economies š The workings of an economic system are driven by the orientation of the government in whose jurisdiction the economic system is found. š The globe is a diverse place, made up of a wide variety of cultures and philosophies. The global economy is the aggregate collection of different economies operating worldwide. š Individual countries and the economies they adopt through regulation and policymaking tend to reflect one of three orientations: a command economy, a market economy, or a mixed economy (Albarran, 2002). š All three types of economies are abstractions (much like theories), as are the labels used to represent them. Still, they offer a simple classification system that is helpful, especially in recognising the role of a government regarding its respective media system. We will define each of these economies in more detail.  Types of Economies š In a command economy, the government regulates all aspects of economic activity; there is no such thing as an open or free market. š The government controls all economic decision-making in determining what goods to produce, how much to produce, and what it will cost. š Command economies have declined since the fall of the Berlin Wall in 1989, followed by the collapse of several Eastern European nations and the breakup of the former Soviet Union. However, two examples of command economies exist: North Korea and Cuba.  Types of Economies š Russia and China were formerly identified as command economies, but there have been some changes in both countries as they slowly progress towards more of a mixed economy. š Regarding media ownership, command economies tend to own or control media very tightly. Russia and China allow some foreign investment and ownership, but the media systems in both countries remain under the government's strong control. š The Kremlin controls all the major media industries in Russia. In China, the country’s official press agent—Xinhua News—is a government-controlled entity, as are all television broadcast stations. Likewise, all North Korean and Cuba media entities are state-owned and controlled.  Types of Economies š The market economy is identified by a complex system of buyers and sellers, where prices and quantities produced are determined openly and freely through competitive market forces without government involvement. š No countries operate in a truly open market economy without any type of government oversight or regulatory guidelines. š Hence, of the three basic classifications, the market economy is idealised by those advocating a totally free market system without government intervention.  Types of Economies š Most countries try to emulate the basic characteristics of the market economy by establishing a mixed economy. š A mixed economy involves free market principles and ideals but also features government regulation and oversight. š The media systems in the United Kingdom and the United States are the two largest examples of such systems in countries operating a mixed economy. š In a mixed economy, the media is predominantly owned by private enterprises and perhaps even foreign investors as opposed to the government—but that doesn’t mean the government has no ownership of the media. š Many countries in Europe, Latin America, Asia, and Africa still own national or regional broadcast channels (TV and radio) and publish or subsidise some newspaper operations. š For example, press subsidies were very common among the Scandinavian nations of Sweden, Finland, and Norway (e.g., Höyer, 1968; Picard & Gronlund, 2003), but that practice has waned (Allern & Blach-Ørsten, 2011). š Many governments have remained at least partial owners of some media outlets to ensure the philosophy of pluralism or to serve the needs of the public rather than the marketplace.  Types of Economies š The mixed economy often features government policies regarding both domestic and foreign ownership of media outlets and other types of regulations over content and political advertising. š A mixed economy is also apparent when advertising is a primary means of institutional support. Advertising is how most media enterprises are subsidised in a mixed economy, as advertisers purchase time (broadcast) or space (press; Internet) to reach audiences drawn to media content. š Yet another trait of a mixed economy is direct consumer payments to media companies. For example, when purchasing a ticket to see a movie, a subscription to a streaming service, or a book or magazine, you send payments to a private enterprise that operates to make a profit. š A mixed economy is commonly identified with the philosophy of capitalism.  Supply and Demand š Supply and demand are two of the most important concepts in understanding economics and economic activity. š Supply refers to the quantity of goods a producer will offer in a market using very simple descriptors based on available resources. š Demand, conversely, represents the quantity of goods that buyers want to acquire in a market. Supply and demand function together in the market system, determining the price of a good or product and the quantities that need to be produced because of the interplay of these two concepts. š Price is directly influenced by supply and demand. In general, the price of a good will fall if the supply is greater than the demand. š Conversely, if demand is greater than supply, the price of the good will rise.  Supply and Demand š Applied to the media industries, there are numerous examples of supply and demand at work. š For example, in the motion picture industry, a movie studio produces a certain number of films each year—the supply is limited by the money available for new productions, as well as by the time it takes to create a feature film and the availability of a good story or script. š The audience's demand for box office tickets or direct purchases for home viewing also influences the production cycles—hence, we see a lot of interest in sequels and content that targets younger demographics, who are most likely to attend movies regularly. š In the print industries, newspapers and magazines determine the amount of content they need to fill out their publications in conjunction with the demand from advertisers. As advertisers demand more space, it is easy to add pages; when demand declines, page counts can be reduced.  Supply and Demand š Radio and television stations broadcast 24 hours a day, so in a sense, there are constraints on the supply of programs and content they can offer at any given time. š Likewise, TV and radio stations can program only so many minutes of commercial time (advertising) per hour; otherwise, viewers and listeners may turn away to avoid what may be perceived as too much advertising clutter. š Advertising-supported streaming services face the same dilemma; too much advertising can turn off viewers, so balancing revenue goals and audience attention is a constant challenge.  Supply and Demand š A unique feature of the media industries is that their products can be reused repeatedly, especially in a digital environment. š So many products we use (like food and drink, gasoline for vehicles, detergent for washing clothes, medicines we take) are eventually consumed and must be replaced. TV programs, music, and movies can be recycled repeatedly, extending their “life” for decades. š However, legacy media products still hold value for some consumers. In 2022, the sale of vinyl records surpassed CDs for the first time since 1987 (Otis, 2023).  š Media content products with long-term incremental value represent what Anderson (2006) identified as the long tail. š The long tail theory resembles a demand curve that follows a long downward trajectory (see Figure 3.1), suggesting that over time, a popular TV series, movie, book, or sound recording will still be in demand long after it has obtained any sort of “hit” status. Smaller, niche buyers will seek it. š The Internet and its various digital platforms, with their access to servers with stored content, enhance long-tail activity and the demand for media content. Supply and Demand  Supply and Demand š Upon publication, the long tail theory generated considerable interest, with some studies supporting the theory and others debunking the approach (Napoli, 2016; Tan, Netessine, & Hitt, 2017). š Regardless, the long-tail approach has merit in helping understand how consumers interact with popular media content in a digital environment. š The demand for content has created a huge market for streaming video content, including movies, television programs, and music, as well as user-generated content on services like YouTube, Vimeo, and TikTok. š Streaming illustrates the advantages of digital platforms in delivering entertainment and information from an anytime/anywhere perspective.  We will revisit price because of its importance to the media economy. Price Price represents the cost of a good or service, determined by supply and demand forces. Prices vary based on how a market is segmented. This is especially true across the media economy. Let’s examine this from the perspective of both advertisers and consumers.  š In advertising, marketers pay for access to audiences via time and space in traditional media and through subscriptions, mobile device apps, and other digital platforms. š Advertisers know they will pay more for platforms that deliver larger audiences (such as network television and newspapers) and less for platforms that deliver smaller audiences (radio). š Likewise, advertisers will pay more for prime positions, such as on television during evening hours when the largest audience is viewing and on radio during morning drive time Price š when audiences commute to work and school. With websites, audience activity occurs in several ways; by clicking through a set of options delivered from a search inquiry, selecting a banner advertisement, signing up for a subscription, or opting in (agreeing) to receive more information, which usually requires some sort of registration process. š Marketers also know it will cost more to target advertising to high-income customers through vehicles like classical radio stations or publications like The Economist or The Wall Street Journal. Price levels vary across advertising, resulting in a form of segmentation depending on the type of vehicle and target audience desired.  š Consumers are also sensitive to price. While there is a tendency to classify consumers into basic categories of household income (low, middle, and high), many levels of segmentation are present. Price š Price points become very sensitive to consumers at all income levels, especially when economic conditions tighten, such as when dealing with inflation. š Because prices rise during inflation, consumers often look for lower-priced alternatives  š Consumer spending varies according to many factors, including gender, life cycle, ethnicity, education, size of the household, and location (where people live). Price š Some products are priced to target the higher end of the market (think in terms of luxury goods like a Mercedes car or Tiffany jewellery), while others may appeal to the lower end of the spectrum (shopping at Dollar General or secondary retailers).  š As seen in these examples, the price of a product or service leads to market segmentation for both advertisers and consumers. Price š In the media economy, prices are also impacted by what economists call elasticity of demand and the ability to substitute one product or service for another, known as cross-elasticity of demand.  š Price elasticity of demand helps us understand how prices vary in an economic system. š The price of a good or product is the direct result of supply and demand functioning in a market. Price is considered elastic because it fluctuates and changes based on Price Elasticity supply/demand forces. This “elasticity” of demand can be considered the responsiveness to price changes. of Demand š The price elasticity of demand can be calculated by dividing the percentage change in the product's quantity by the percentage change in price. š If the result is greater than 1.0, demand is considered elastic. If the result is exactly 1.0, demand is considered unit-elastic. If the result is less than 1.0, demand is considered inelastic.  š For example, in elastic demand, a change in price results in a proportionally greater change in the quantity demanded, which means revenues will increase for the supplier. š When home computers were first introduced in the 1980s, prices were Price Elasticity high. Over time, prices declined, leading to more households adopting of Demand computers. The decline in prices meant more computer sales. In the media economy, elastic demand is typical for many types of consumer technologies, ranging across such items as laptops, 4K televisions, tablet devices, mobile phones, and voice assistants.  š Unit-elastic demand occurs when a change in price results in a proportionally equivalent change in demand. In other words, prices can either rise or fall, but the quantity demanded changes proportionally by the same amount. Thus, revenues will Price Elasticity remain unchanged. of Demand š Finally, inelastic demand occurs when a percentage change in quantity demanded is less than the percentage change in price. This means that, as prices decline, revenues will also decline. Goods and services for which there are no clear substitutes are considered inelastic.  š It is important to recognise that the price elasticity of demand is influenced by many exogenous variables such as household income, substitutability, Price Elasticity necessity, and duration (i.e., the longer a price holds, the higher the elasticity). of Demand š However, a key trait of the media economy is that most products can often be substituted for comparable products, a concept known as cross- elasticity of demand.  Cross-Elasticity of Demand š While price elasticity is an important concept in understanding demand, we must also recognise that comparable products and goods can typically be substituted for one another. š This concept is referred to as cross-elasticity of demand. In the media economy, cross-elasticity of demand is quite common.  Cross-Elasticity of Demand š For example, you might impulsively head to your local cinema with a friend to see a new movie, only to discover that the movie you wanted to see was sold out. You could go home or find another activity, but like many people, since you are already at the theatre, you choose to see another film. š The second movie may not have been your first desired option, but it is an acceptable substitute. š Likewise, when streaming music, you may want to hear a particular genre of music, so you focus on those selections rather than the other suggested songs. By their nature, media products offer great substitutability, facilitating cross-elasticity of demand. š Cross-elasticity is a common practice with so many media products and ways to consume these products.  Cross-Elasticity of Demand š Over-the-top (OTT) was an early term for streaming over the Internet. š Now the term streaming is used more commonly by consumers. š Streaming is one area where we see a lot of cross-elasticity of demand. A new user can sign up for a free trial (usually 7–30 days) to a service like Hulu or Netflix to “binge” content unique to that service and simply cancel or switch to another service once their viewing is complete.  Cross-Elasticity of Demand š Cross-elasticity of demand raises concerns for media companies and advertisers vying for our attention. š Because there are so many choices for content available, this leads to increasing audience fragmentation into smaller and smaller sectors. š As we add new digital platforms and other technologies to reach consumers, the problem is magnified, giving consumers more control over when, where, and how we access media content. š Digital platforms are also easy to add or cancel, creating an ongoing system of audience churn where a portion of the subscriber base leaves the service each month while others are added. Other Forms of Demand š In addition to price elasticity and cross- elasticity, other types of demand are found in the media economy. š The actual demand for the media content or product is one example. Normally, we think of this as taking place at the individual level as we consume (watch, listen, or read) content products such as a movie, a TV program, a sound recording, or a printed story. š Consumers decide about content options based on their wants and needs and the perceived utility and value of the content. \ Other Forms of Demand š Another obvious type of demand comes from advertisers. š Advertisers seek to have their messages seen and heard by audiences accessing the content; they purchase time and space among media outlets to reach the audience. š For the most part, advertisers are not concerned with the content, but they are very interested in the audience. š Therefore, advertisers will seek to maximise exposure to their messages when they acquire time and space in the media economy. š Advertising represents the primary revenue form in most media economy sectors (see Table 3.1). Other Forms of Demand š A third type of demand is the actual demand for media properties. š Media properties include radio and television stations, newspapers, magazines, publishers, film studios, recording companies, Internet service providers and search engines, and all types of digital-based firms (social media, applications, etc.). š Media mergers and acquisitions mushroomed in the 1980s and 1990s due to low-interest rates, plenty of available capital, and, most importantly, high demand for businesses with a history of strong profit margins. š Table 3.2 lists a sample of some of the notable media-related mergers and acquisitions from 1990 to 2020.  š Wants, needs, utility, and value are four interrelated concepts functioning primarily at the consumer level that impact our individual demand for media content and media products. š A want is simply something we, as Wants, Needs, consumers, desire to enhance our lives. š Wants represents a wide variety of Utility, and feelings. We may see a want as something that provides pleasure or gratification. Value š A want may fulfil a goal, a dream, or something to save time and effort. š Many things influence our wants: our peers, family, institutions with which we interact (schools, churches, organisations, etc.), and especially culture and advertising.  š Needs are more basic than wants. In the strictest sense, needs are things we need to survive, such as food, water, shelter, and clothing. š We need a job or some sort of income to provide for our needs and those of those who depend on us. We also need some Wants, Needs, sense of structure or purpose in our lives. š Needs are very basic, but in a media-rich Utility, and world filled with persuasive advertising messages, popular culture, and societies driven by consumption and acquisition, Value people often confuse wants with needs. š Clearly, wants and needs drive a lot of consumer spending on all sorts of products and services, including media content products. š Wants and needs are also influenced by two other concepts: utility and value.  š Utility is best thought of as the satisfaction derived from using media products and services. š For example, if you own a tablet, you probably enjoy it for many reasons: Wants, Needs, portability, great audio and video quality, ease of operation, Internet Utility, and access, etc. Your tablet offers you a lot of utility when it comes to enjoying Value media content. Your smartphone is another example. Smartphones offer great utility to consumers, with numerous features and applications that we can tailor to our specific use and lifestyle.  š Economists define value as the worth we place on a particular product or service. Wants, Needs, š Value is subjective in nature because we value media products differently. Utility, and For some, it might be a subscription to a streaming service or two or a Value physical collection of movies or music. š For others, it might be video games or a particular book series. We assign value based on our own system of wants and needs.  š Life stages, income, household size, and other demographic variables also influence wants, needs, utility, and value. š For example, millennials typically perceive more value and utility in a broad range of technology and media- Wants, Needs, related products, while older adults are less enamoured with technology and are interested in more targeted products. Utility, and š As we grow and age, our wants and needs evolve, as do our perceptions of Value utility and value. š This raises both opportunities and challenges for media enterprises as these institutions try to develop content and products that will interest consumers across many different lifestyles and demographic categories. Case Study: Pricing Media Products š Given the previous discussion, this is a good time to revisit the subject of pricing of media products. š Media products all have an economic cost. Even free products have an opportunity cost when you consider the time spent “consuming” or using the product. š Most media products have an economic cost, payable in real dollars and cents. š Media content is discretionary because it is not life-sustaining, such as shelter, food, clothing, etc. š The amount we pay for a media product varies by many factors, as discussed, such as consumer spending. š Therefore, the pricing of media products becomes a critical decision for media companies. Case Study: Pricing Media Products š Many media products are modestly priced to attract as many consumers as possible. š One can buy media products as an individual purchase (a sound recording, movie, TV program) or as part of an ongoing subscription. š Subscriptions come in different packages or tiers and may include advertising or be offered ad-free at a higher cost. š Subscriptions are popular for customers, and many products come with free trials of at least 7 days to sample a service. Offering trials encourages conversion to a regular subscription, and once a customer subscribes, it creates the opportunity for longer- term engagement. š Subscriptions have become much more customer-focused and flexible in the digital age, and they can be easily cancelled or replaced. Case Study: Pricing Media Products š Legacy media has suffered for several decades in retaining subscribers to many media products and services like newspapers, magazines, and cable and satellite television to name a few. š This is because these services have much higher distribution costs—the actual cost to get the product to the customer. š Digital media products have costs, but distribution is negligible, with digital products accessible via smartphones, smart TVs, and tablets.  Allocation š Allocation is a central part of economic decision-making; in the media economy, allocation decisions are made by all parties. š Suppliers must determine how many units of a product (e.g., a motion picture, a TV series, a book, etc.) to produce based on available resources. š Advertisers must decide what messages to place in what mediums, depending on strategic goals and objectives as well as their budgets.  Allocation š The individual level involves many allocation decisions. š Consumers make allocation decisions related to media products and services based on their discretionary income as well as their time. In terms of expenditures, consumer media spending is heaviest in developed countries. š But most individuals do not have unlimited financial resources, so we make decisions on how much money to spend on television (do they subscribe to a multichannel cable/satellite/IPTV service or cut the cord?), print material, Internet access, music purchases, movie tickets and rentals, subscriptions, applications, and so on. š But, perhaps more importantly, individuals are constrained by time, as each of us has only 24 hours in a day, 168 hours in a week.  Allocation š Each day, consumers make numerous allocation decisions about how they spend their time and money, often out of habit or without much discernment. š Media companies know that the only way to entice and attract new consumers is through a combination of marketing (advertising, promotion, social media, and other activities to increase awareness) and branding (e.g., logos, positioning statements, and slogans that consumers will easily recognise). š Each day, a “war” exists to attract our attention through numerous forms of advertising and promotion to brand names we see on clothing, accessories, and items we use daily. š These efforts are designed to persuade consumers as we make allocation decisions. In a highly competitive, fragmented media environment, reaching consumers and attempting to influence their allocation decisions have become increasingly challenging.  š Horizontal and vertical integration are strategies a media enterprise employs Horizontal and to determine how to create a competitive advantage in the Vertical marketplace. š Both concepts are easy to understand, Integration but integration decisions are usually made by the largest firms and conglomerates.  Horizontal Integration š When a company enters different markets, it engages in horizontal integration. š If a firm produced only one product or was active in only one market, this would represent a single-dimensional activity. š Such would be the case for a newspaper publisher that only publishes newspapers but has no other holdings. š This company’s economic future would be tied to the success or failure of that single newspaper.  Horizontal Integration š When companies expand into other related or non-related markets, they are engaging in horizontal integration—meaning they draw revenues (and losses) across business segments. š Some segments may perform well, while others may not. A horizontal strategy is widely believed to help ride out fluctuations in the business cycle.  Horizontal Integration š In this sense, horizontal integration is also considered a form of diversification. š Several studies have examined diversification among media companies. Dimmick and Wallschlaeger (1986) studied the diversification of TV network parent companies about their activities in new media. š Albarran and Porco (1990) examined firms' diversification in the premium cable market. Chan-Olmsted and Chang (2003) found several related products in the businesses of global media firms, while Kranenburg, Hagedoorn, and Pennings (2004) found that large publishing companies tended to diversify into related businesses.  Horizontal Integration š Several media companies engaged in horizontal diversification from 1980 to 2000 as a strategy when media mergers and acquisitions were on the rise. š A few companies underwent a profound change as their asset base changed owing to acquisitions. Before the Walt Disney Company acquired Capital Cities/ABC in the 1980s, its only media-related assets were the Disney Studios. š Disney is one of the world’s largest media companies, well known for its theme parks and multiple brands and a leader in streaming with Disney+. Amazon started as a company selling books. š Now, Amazon is the leader in e-commerce and owns successful video and audio streaming services (Amazon Prime Video and Amazon Music) and the MGM film studios.  Vertical Integration š Vertical integration is a firm’s effort to control all aspects of creation, production, distribution, and exhibition, forming a media value chain. š By controlling these functions, the company could theoretically leverage their assets more efficiently and engage in cross-marketing and cross-promotional efforts to capture more revenues at the various stages of the value chain and, ideally, increase market share. š Examples of studies examining aspects of vertical integration are Chipty (2001), Hong, Lee, & Hwang (2011), Oba & Chan-Olmsted (2006), and Waterman (1993).  Vertical Integration š Vertical integration among media firms attracted attention in the 1980s with the merger of Time Inc. and Warner Communications to create Time Warner. š The company significantly added to its asset base and vertical integration capabilities with the later acquisition of the Turner Broadcasting System and its holdings (notably satellite channels CNN, Headline News, TNT, and Turner Classic Movies) in the early 1990s. š Time Warner’s rush to vertical integration was mimicked to various degrees by other conglomerates, notably Viacom, Disney, and News Corporation. š These companies followed Time Warner's lead to create a vertically integrated conglomerate.  Vertical Integration š By the mid-2000s, many of these vertical integration efforts were being trimmed back. Vertical integration was costly to maintain, and the digital revolution hampered efforts to keep up with changing technological distribution. š Companies began to split off non-core holdings. Viacom and CBS split into separate companies. Disney sold some of its assets to focus more on core holdings like ESPN and its motion picture unit, and to that end, acquired Pixar, Marvel Entertainment, and Lucasfilms to bolster their efforts. š Time Warner sold its cable television systems. News Corporation was also split into two companies: News Corporation, which held the print assets, including Dow Jones (publisher of The Wall Street Journal), and 21st Century Fox, which held the movie and television studio networks and various satellite channels. š In 2017 the 21st Century Fox entertainment assets became part of the Disney Company.  Vertical Integration š Looking back, vertical integration was not a very successful strategy for media companies, and it was a very expensive strategy to implement, costing billions of dollars. Stöhr and Budzinski (2020) review the history of vertical and horizontal integration mergers in the United States. š In the 21st century, media firms have tended to shed non-core assets that distract from the company's base and work on building strong brands and capturing market share for core holdings. š After spending billions over several years to become a vertically integrated media company, AT&T sold its entertainment assets (DirecTV, Time Warner, HBO Max) to focus on its core telecommunications business. š Similarly, Verizon abandoned its new media ventures (acquiring and selling Yahoo!) to return to its strength as a telecom provider.  Vertical Integration š At the same time, we see new companies—Google (now Alphabet) and Facebook (now Meta Platforms) the best examples—taking a different approach to vertical integration by attempting to be all things related to technology and the metaverse, respectively. š Google and Facebook have spent billions buying other companies (YouTube for Alphabet and Instagram and WhatsApp for Facebook) to broaden their competitive positions across markets.  š Competition and concentration are two more interrelated concepts that are useful in understanding the functions of the media economy. š Competition refers to the degree to Competition which competitors compete for the same resources. and š Applied to the media economy, the Concentration resources for which the media industries commonly compete are audiences and advertisers. š The media industries need audiences and advertisers to grow their operations and survive.  š There is also competition for creative talent in the form of writers and directors. Netflix signed writer Shondra Rhimes, the creator of several popular prime-time network shows (e.g., Grey’s Anatomy, Private Practice, Scandal, How to Get Away with Murder), to an exclusive production contract Competition with her company Shondaland. Rhimes’ first big hit with Netflix was the popular series Bridgerton. and š Competition decisions among firms represent part of their strategic management efforts, as Porter (1980) described firms seeking a Concentration competitive advantage against other competitors. š Dimmick (2003) and colleagues established a strong body of literature related to media industry competition. With the wide expansion of digital platforms, competition for audiences and advertisers has never been greater.  š Competition is also of interest to policymakers and regulators, who want to ensure competitive markets in all sectors of the economy to stimulate the best options for consumers. Competition š Competition is directly related to the concept of concentration. and š Concentration is a characteristic of a market’s structure, exemplified by the Concentration theory of the firm. š Competition is non-existent in a monopoly but grows as the number of competitors rises towards oligopoly, monopolistic competition, and perfect competition structures.  š One of the biggest challenges for regulators is how to measure competition. š Historically, this was not difficult when media-related markets were singular and not intertwined. Competition š Regulators are challenged by the digital transformation leading to the dissolving and of market boundaries and the degree of activity across markets, especially global markets. Concentration š Competition measures were established to assess the degree of concentration in a market. š Common measures of concentration are usually tied to ratings, circulation, or revenues and include the following tools and methodologies:  š Concentration ratios. š These are typically used to measure the combined market shares of the top four or top eight firms in a market; they are Competition also labelled as the CR4 or the CR8 (Albarran, 2002). and š If the combined shares of the top four firms are equal to or greater than 50%, Concentration the market is considered concentrated. š On the CR8, if the combined shares of the top eight firms are equal to or greater than 75%, the market is considered concentrated.  š Herfindahl-Hirschman index (HHI). š A more sophisticated measure to assess competition, the HHI is calculated by Competition squaring the market shares of each firm and then determining if the degree of and competition is high (>1,800), moderate (≥1,000 to ≤1,800), or unconcentrated (