Is an industry oligopolistic or monopolistic?

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Question: 

Hi, with reference to "Market Structures", how can you work out whether your industry is operating in an Oligopoly/monopolistic/... environment if there is insufficient data? I'm specifically examining the concentration ratio of Property Appraisal firms in France. But without publicised figures regarding the number of Property Appraisals per firm, per year, how can one talk about an industry without knowing its competitive landscape?

Answer: 

As you wrote, to compute concentration ratios, you would need data on quantities produced or sold (property appraisals in your case) and a reasonable market definition, which can be a separate challenge on its own. 

Assuming you have a proper market definition, if you cannot observe quantities produced, you could take alternative approaches to approximate market shares.  For example, you can use measures of inputs such as labor and capital to infer production levels although this approach requires plausible assumptions about the production function.  On the other hand, if you observed revenues and prices, you could infer quantities sold a little more directly.  You can also explore how the number of firms and prices vary across markets to gauge how competition varies across markets.  Since we expect more competitors to enter larger markets and the variable profits to fall with more competitors, if an additional firm entry is associated with a steep increase in market size (or a steep decrease in prices), then a corresponding steep increase in competition would be expected.  It is worth noting that you would only learn from this approach how competition changes across markets, not the levels.  And not knowing the amount of firm differentiation (e.g., costs) is yet another hurdle to overcome.  As you can see, the approaches discussed above all require more data and a model to interpret the data with. 

Answered by:
Dr. Donghyuk Kim
Assistant Professor
Last updated on August 21, 2022