Assume that an industry is significantly affected by import competition from foreign suppliers. Taking this factor into account, it would mean that
A) the Herfindahl index would be significantly higher in that industry because there are more firms in the industry.
B) the industry is less concentrated than suggested by domestic concentration ratios.
C) there is a high degree of interindustry competition.
D) there is a low degree of interindustry competition.

Question

Quizplus · Accepted Answer

If an industry is significantly affected by import competition from foreign suppliers, it would mean that the industry is less concentrated than suggested by domestic concentration ratios. This is because the import competition reduces the market share of domestic firms, which in turn reduces the concentration ratio. Therefore, choice B is the best answer. The Herfindahl index may or may not be significantly higher depending on the number of firms and their market shares. The level of interindustry competition is not related to import competition.

Assume That an Industry Is Significantly Affected by Import Competition