Suppose the 2-firm concentration ratio (measuring output)in a Canadian manufacturing industry is over 90%.Why might the market power of these 2 firms be less than the concentration ratio suggests?

Question

Quizplus · Accepted Answer

The market power of the two firms may be less than the concentration ratio suggests if the product is traded internationally and the two Canadian firms have to compete with many global rivals. In such a scenario, the concentration of two firms in the Canadian manufacturing industry may be immaterial as they face stiff competition from international players. Moreover, a high concentration ratio does not necessarily mean high levels of market power, making option B incorrect. Option A and D are factually incorrect and irrelevant to the given scenario. Option E may be partially correct, but option C provides a more specific and relevant explanation.

Suppose the 2-Firm Concentration Ratio (Measuring Output)in a Canadian Manufacturing