BUS 525: Managerial Economics Lecture 7 The Nature of Industry

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Industry Analysis Market Structure –Number of firms. –Industry concentration. –Technological and cost conditions. –Demand conditions. –Ease of entry and exit. Conduct –Pricing. –Advertising. –R&D. –Merger activity. Performance –Profitability. –Social welfare.
Industries dramatically vary with respect to concentration levels. –The four-firm concentration ratio and Herfindahl- Hirschman index measure industry concentration. The Lerner index measures the degree to which firms can markup price above marginal cost; it is a measure of a firm’s market power. Industry performance is measured by industry profitability and social welfare..