Market Control
Essay Preview: Market Control
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In todays market industries in general aim to be the top in there expertise. Being at the top means a lot to customers, corporate investors, and employees as well. In order to find out who is at the top of the market companies use what is called the Four-Firm Concentration Ratio. The four firm concentration ratio is the proportion of total output in an industry thats produced by the four largest firms in the industry. This is one of two common concentration ratios. The other is the eight-firm concentration ratio. The four-firm concentration ratio is commonly used to indicate how market control is held by the four largest firms in the industry.
Now lets take for example say 20 firms with a concentration ratio of 30%, this means this is more of a free market. Since only 30% is held by the four-firm concentration ratio there is more space for the “little guys” to make money. This also creates more completion for everyone. This is a great economic booster and would have a positive effect on everyone except the top four firms. This is a result of “market over crowding.”
In another example there are 20 firms with a concentration ratio of 80%. This means there is less of a market. The four major firms control 80% of the market. This is not good for the average person, since the price is basically controlled by four companies. Yes it would be a higher profit rate for the company. Yet it would put the “mom and pop” shops out of business. And be financially harder on the economy.
In the perfect world the concentration rate would be 60%. This gives the top four firms the leverage they need along with giving all the secondary firms a chance. Economy would be boosting and everyone would be profitable. This creates a very competitive market and allows new businesses to get a start.
In the end the government helps control the balance of business with the federal trade commission. As we learned in the last chapter many of the top businesses in the market have been found guilty of trying to control the market, this is known as price fixing. I feel that there should be a steeper penalty for these types of crimes since these effects the whole economy. But I guess this too in a way is another check and balance.