Ways to Measure Industry Concentration

Generally the concentration of competitors has been fragmented by geography. However, through recent consolidations, the emergence of regional and national chains has started to prevail along with the decline of the independent/local shops. This consolidation activity has allowed many companies to spread their fixed costs over a wider range of output, thus

Industry supplier concentration measures how many suppliers there are in a certain industry. The amount of firms in an industry will affect whether the firms are involved in an oligopoly, a monopolistic market or a perfectly competitive market. Concentration ratios can be used to measure how concentrated a certain industry is. The most common concentration ratio used is the four-firm concentration ratio which measures the output of the 4 largest firms in the market and gives that as a ratio of the overall industry sales. Another method of measuring concentration within an industry is by using the Herfindahl Hirschman Index (HHI).This measurement is calculated by determining the market share of each firm, squaring each number then adding them together. If the number that is calculated is below 1000 it is considered to be of a low concentration and if it is above 1800 it is considered highly concentrated, however it can be between 0 (perfect competition) and 10,000 (pure monopoly). (MICROECONOMICS 2007)

Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories,

These ratios will help us see how effective a company is at using their sales or assets and turning this into income.

Example: The leverage ratio can be used to the companies benefit if they need to make a big purchase. They can add on more debt until the money comes through.

The concentration strategy is used when a company wants to maximize its profits and thereby seek market dominance with market share and current technologies. A company thus directs its resources toward achieving a high growth rate in terms of the profits of a single

.The liquidity ratio is used to determine whether the organization has sufficient assets that are cash, or will become cash soon to pay current liabilities as they come due. The liquidity ratio is frequently used to assess the ability of the organization to meet its obligations over the coming year (Finkler, 2013). Lastly, the common size ratio is also used at the health care clinic. The goal of the common size ratio is to make an organization comparable to other organizations of different magnitude. The common size ratio helps put everything into perspective based on organizational size. Information obtained about the common size ratio is crucial, because by showing trend information, the organization can create strategic plans based on

Suggested ratios to shoot for are found by putting them into the context of various industry figures. By using other firms as a yardstick, you can then assess where your values need to fall to be competitive with other firms similar to your own.

IBISWorld estimates that the top four firms account for less than 10.0% of total industry revenue. This industry has a low level of concentration due to the localized nature of most businesses. The majority of firms in the industry are small and medium-size businesses that employ fewer than 20

Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories,

Market Concentration Ratio January December 2000 CR Studios Total Revenue Market Share (Market share)^2 CR4 Buena Vista $1,175,600,000 15.5% 0.024025 Universal $1,069,100,000 14.1% 0.019881 Warner Bros. $905,300,000 11.9% 0.014161 Paramount $791,100,000 10.4% 0.010816 Total $3,941,100,000 CR6 Buena Vista $1,175,600,000 15.5% 0.024025 Universal $1,069,100,000 14.1% 0.019881 Warner Bros. $905,300,000 11.9% 0.014161 Paramount $791,100,000 10.4% 0.010816 DreamWorks SKG $777,200,000 10.3% 0.010609 20th

The markets located in these sectors that experienced high degree of market concentration are telecommunications, electric industry, television broadcasting, petroleum, beer industry, cement industry, and tortillas industry. About one or more of these iindustries in both the private and public sector has enough market power to restrict competition.

Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.

Table 1A provides an industry analysis of firms forming part of our subsamples. While the analysis reveals that a quarter of our sample is made of mining companies, this doesn’t mislead the interpretation of our results because the actual weights of all industries in our sample are consistent with what we observe in the index ASX 200. In general we observe that the key variables of the assembled data are skewed. According to Merhebi et al. (2006) the skewness of data variables is also found in distribution of data from USA, UK and Canada. Therefore logarithmic models are more appropriate to alleviate skewness in companies data variables or the effect of extreme values and to avoid any heteroscedasticity problem that might end contaminating our regressed models. To detect any multicollinearity problem in our independent variables, we need to establish correlation matrix table, thus avoiding the use of highly correlated independent variables in the same model. We have used a correlation matrix to verify the existence or non-existence of linear relationship among independent variables or between explanatory variables and independent variables. CEO remuneration and firm size do exhibit a somewhat moderate link. However there is little evidence of multicollinearity among the explanatory variables since the correlation among them is not strong hence all the variables can be incorporated into the subsequent regression analysis as stated in different hypothesis.

An organization would have to decide whether to sell propylene, isopropanol, isopropyl acetate (chemical intermediates), and/or plastics.