[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

Table 12.2
DEGREE OF COMPETITION IN VARIOUS INDUSTRIES
Market share of top 4 firms
(percent)
Motor vehicle manufacturers
Book publishers 41.8
Grocery stores 30.9
Electronic shopping and mail-order houses 19.0
Air transportaation 18.7
Furniture stores 8.1
Truck transportation 7.6
Florists 1.7
SOURCE: 2002 Economic Census (www.census.gov/epcd/www/concentration.html).
produced by the top four firms in a variety of industries ranging from books to
furniture. This fraction is called the four-firm concentration ratio, one of several
measures used to study industry concentration. When the four-firm percentage is
high, as in the automobile or book publishing industry, companies have considerable
market power. When it is low, as in the case of furniture or florists, market power is
low; each firm faces a practically horizontal demand curve. 2
PRODUCT DIFFERENTIATION
The amount of competition also depends on the extent of differences between the
products of an industry. In some industries, the goods produced are essentially identical,
as in the case of agricultural goods such as wheat and corn. More typically, the
firms in an industry with imperfect competition produce goods that are imperfect
substitutes—goods sufficiently similar that they can be used for many of the same
purposes, but different in ways that reflect consumer preferences. Kellogg’s Corn
Flakes and the store brand may look alike, but more people purchase the Kellogg’s
version, even though it is more expensive. Many of the goods people buy belong to
clusters of imperfect substitutes: beverages (Coke, Pepsi, and store-brand colas),
cars (Toyota Camry, Honda Accord, Ford Taurus, and other four-door sedans), clothing
(Land’s End, L.L. Bean, and Eddie Bauer), computers, cameras, telephone service,
building materials, and many more. Economists refer to this phenomenon as
product differentiation.
Because product differentiation is a source of market power, firms devote considerable
effort to producing goods that are slightly different from those of their
2 In both theory and practice, a critical issue in evaluating the extent of competition is defining the relevant
market.
ASSESSING THE DEGREE OF COMPETITION ∂ 271