Question

Explain alternative methods of measuring industry concentration

Short answer

The central point of the absolute measurement is the absolute number of firms and their share of the industry's production, employment, or wealth.

Step-by-step solution

Step 1:Introduction to industry concentration 

Seller concentration is a result of industrial concentration. In other words, in a market, some large firms control production and sales. The limit of this industrial concentration is determined by two major factors: first, the number of active firms in the given market, and second, the amount of demand fulfilled by a firm as a percentage of total market demand. If the number of firms in a market is limited, the size of firms will be relatively large, and a large firm will control a large portion of total supply.

Step 2:Industrial concentration measurement methods  

Industrial concentration measurement methods are classified into two types:

absolute and relative.

Absolute Concentration Measures

The central point of the absolute measurement is the absolute number of firms and their share of the industry's production, employment, or wealth.

Step 3:The Relative Concentration Measures 

The Relative Concentration Measures: The emphasis in this measure is on firm inequality. That is, in a market, firms of different sizes produce at different rates. The Lorenza Curve can be used to calculate the relative concentration of sellers.