Analysis Of Salvatore 's Chapter 10

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Salvatore’s Chapter 10:

Discussion Questions


The two most common measures of degree of centration is concentration ratios and Herfindahl index. Concentration ratio measures how much an industry is dominated by large firms as represented by 4,8, or 12 of the largest firms for that industry. Herfindahl index looks at the degree of concentration for an industry as the sum of squared values of shares for all of the firms in that given market. Herfindahl holds some advantageous when compared to concentration ratios such as information from all firms in the industry versus a select few firms, as well as its practicality cemented by its adoption into the Justice Department from the mid 1980s onward.

8. OPEC is an example of centralized cartel where a formal agreement exist between a few oligopolistic firms to set a monopoly price, as well as develop plan to distribute profits accordingly. The goal is to increase earnings based on outputs and adjust pricing at outputs differ over time.
OPEC had been successful in heavily influencing settling price in the oil industry prior to the oil shock of 1973. This event gave outsiders the opportunity to explore alternatives to oil resources and subsequently reduced the market share that OPEC carried in oil production and exportation.
The Iraq War of the early nineties brought back a heavy demand for oil and consumption from far east countries spiked oil prices, giving OPEC back some of the market share that had been…

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