Using the concentration ratio to measure the degree of competition
A) may understate the degree of competition because it ignores imported goods.
B) may overstate the degree of competition because it ignores imported goods.
C) may overstate the degree of competition because inter-industry competition is ignored.
D) may understate the degree of competition because market share changes annually.

Question

Quizplus · Accepted Answer

The concentration ratio, which measures the market share of the largest firms in an industry, may understate the degree of competition if it does not account for the competitive pressure from imported goods. Imported goods can provide significant competition to domestic firms, thus increasing the overall competitiveness of the market.

Using the Concentration Ratio to Measure the Degree of Competition