Research and Analysis of a Monopoly/oligopoly Market

transportation costs are insignificant, the

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geographic market is frequently defined as the entire nation. Or where a firm and its

rivals sell their product only in a limited geographic area and their customers have no

ready access to an outside source of supply, the general rule has been to define the

geographic market as that particular area and to include only the sales made within the

market. Where the seller’s geographic market is less certain, attention is paid not only to

actual sales patterns but also to price relationships and movements in different areas. In

sum, the relevant geographic market in competition analysis is that “section of the

country” where a firm can increase its price without attracting new sellers or without

losing many customers to alternative suppliers outside that area.

(2) Market Structure and Market Power

Required Statistical Information

• Market Share of Each Concerned Firm in Each Geographical Market

• Average Market Shares in Each Geographical Market

• Four-Firm Concentration Levels and HHI

• Industry Price-Cost Margin

• Price Cost Margin by Each Concerned Firm

• Imports of Concerned Goods

(a) Market Share

Market shares are antitrust’s chief tool for assessing the competitive significance of

firms in the relevant market. Market shares most often are calculated by setting the

concerned industries’ historical output (measured in production units or sales) as the

numerator and then dividing that by the larger denominator constituting total production

or sales in the defined area.

(b) Concentration measures

To quantify oligopolitical concentration effects, the Herfinadahl-Hirschman Index

(HHI) for leading firms market share measures of concentration. The HHI is calculated

by summing the squares of the market shares of each firm in the market. For example,

in a market with ten firms which each account for 10 percent of sales, the HHI is 1000.

The HHI measures concentration in a way that reflects both the absolute level of

concentration and the significance of larger firms within the market.

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HHI in the US 1992 Merger Guidelines

The US 1992 Guidelines focus on shares and concentration data to create a

presumption of illegality (if the HHI is above 1800 and it is increased by more than 100

points) or legality (if the HHI is below 1000, or between 1000- 1800 and the increase is

less than 100).

In the prospected research, price-cost margin and the price elasticity of demand

in each concerned market need to be calculated to analyze the market structures.

(c) Market Entry Conditions

After considering market shares and concentration measures, market entry

conditions should be analyzed. Market shares are rarely evaluated market in isolation

when measuring the defendant’s market power. Inferences from market shares typically

are qualified by factors such as entry conditions, the size and stability of market shares

over time. Of these factors, entry is often paramount. Where entry is easy, it become

difficult to