What is the correlation between, and evidence behind, market concentration and price levels? Do you find any relationship between lack of competition and other economic variables? Use at least one article from The Wall Street Journal, or another scholarly reference, to support your response. What are the ethical ramifications of market concentration?

Elizabeth Quiroz

Sep 1, 2023, 11:53 AM

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What is the correlation between, and evidence behind, market concentration and price levels? Do you find any relationship between lack of competition and other economic variables? Use at least one article from The Wall Street Journal, or another scholarly reference, to support your response. What are the ethical ramifications of market concentration?

Market concentration refers to the degree to which a small number of businesses dominate a certain industry or market. It is widely measured using metrics like the concentration ratio and the Herfindahl-Hirschman Index (HHI). Pricing levels, on the other hand, outline the usual costs of goods and services within a market. There is a relationship between price levels and market concentration, but it is complex and liable to alter depending on a number of factors and market conditions(OECD. 2018).

The essential points and supporting data for the correlation between market concentration and price levels are: market concentration and pricing, elasticity and demand, empirical support, government regulation and antitrust. In this case we will focus on the following:

• Market Concentration and Pricing: A small number of companies frequently hold a uneven amount of market power. Businesses with substantial market power may be able to set prices above levels of competition, which would result in higher pricing for consumers. This is particularly true in marketplaces where entry restrictions prevent new competitors from entering and stealing market share.

“High and rising profits in an increasingly concentrated market are typically a sign of lessening competition and increased market power by dominant firms. Today, profits are up in industries in which a shrinking number of players have a growing share of the business. That’s good for shareholders, of course, but it’s not so good for consumers or the overall economy” Wessel, D (2018). Declining competition may also lead to decrease investment in innovation since there is no pressure to stay ahead of rivals.

It is important to keep in mind that higher cost is not all brought on from markets that are concentrated. There are industries that have a higher market concentration due to the scales of economy, developments in technology, or other factors that lead to cheaper pricing for consumers. As for other concentrated markets could face strong competition due to other variables such as the quality of the product or innovation not just the pricing. The effects of market concentration tend to be dynamic and are liable to change over time.

While market competition can be healthy, concentration can lead to negative outcomes that ultimately affect the consumer.

References:

Wessel, D. (2020, April 3). Is lack of competition strangling the U. economy? Harvard Business

Review. Retrieved May 18, 2022, from hbr/2018/03/is-lack-of- competition-strangling-the-u-s-

Econom

OECD. (2018). Market concentration – OECD. Www.oecd.org. https://www.oecd.org/daf/competition/market-concen…