Question

Use Table 11.5 to calculate the four-firm concentration ratio for the U.S. auto market. Does this indicate a concentrated market or not? $$\begin{array}{l|l} \hline \text { GM } & 19 \% \\ \hline \text { Ford } & 17 \% \\ \hline \text { Toyota } & 14 \% \\ \hline \text { Chrysler } & 11 \% \\ \hline \end{array}$$

Short answer

The four-firm concentration ratio for the U.S. auto market is calculated as 61% by adding the market shares of GM (19%), Ford (17%), Toyota (14%), and Chrysler (11%). This indicates that the market is somewhat concentrated, as the four largest firms hold a significant share of the market.

Step-by-step solution

Identify the market share of the four largest firms

According to Table 11.5, the market shares of the four largest firms are as follows: GM: 19% Ford: 17% Toyota: 14% Chrysler: 11%

Calculate the four-firm concentration ratio

To calculate the four-firm concentration ratio, add the market shares of the four largest firms: Four-firm concentration ratio = GM + Ford + Toyota + Chrysler = \(19\% + 17\% + 14\% + 11\% = 61\%\)

Analyze if the market is concentrated or not

The four-firm concentration ratio for the U.S. auto market is 61%. Although the market isn't highly concentrated (close to 100%), it also isn't very close to 0%, which means that it is somewhat concentrated. The four largest firms hold a significant share of the market, indicating that there is some level of concentration in this market.