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UCSC / Economics / ECON 101 / What is the meaning of rothschild index (structure)?

What is the meaning of rothschild index (structure)?

What is the meaning of rothschild index (structure)?

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Rothschild Index (structure)Don't forget about the age old question of Explain each of the indices of human development.

  • Fraction or ratio of the elasticity of industry demand (ET) to that of an industrial firm (Ef)
  • R= 
  • Extremes:
  • Monopoly: ET = EF because 1 firm -> R=1
  • Perfectly competition: R ≈ 0
  • 0 ≤ R ≤ 1

We also discuss several other topics like What is explained by the taylor series in trigonometry?

2/13/2017

Structure-conduct performance

        Rothschild Index: R= 

  • EF = ∞ = 0
  • ET = EF = 1 -> monopoly
  • ET = EF = 0 -> perfectly competition
  • HH1
  • C4

We also discuss several other topics like What is an example of an early adapter?

ConductDon't forget about the age old question of What belief refers to practice of healing based on trance-like states?

  • Pricing behavior: measuring how much the firm is able to mark up P over MC
  • Integration or merger activity
  • Research and development
  • Advertising

Don't forget about the age old question of What's an example of an echoic memory?

The Lerner index (conduct-pricing)

  • the percentage of the price that is a markup above MC
  • 0 < L < 1
  • 0: perfectly competition
  • 1: monopoly

We also discuss several other topics like What is the formula for normalizing a vector?

Mark up factor

  • (MC)
  • (1- L) : Mark-up factor
  • How much we mark up MC to produce profit-max price

Mergers

  • Vertical mergers: different phase in production process
  • Reduce transaction costs
  • Horizontal mergers:
  • Firms productivity similar produces merge into a single firm
  • Cost saving
  • Increase in market power
  • More concentrated industry
  • The integration of unrelated product lines

Conglomerate merger:

  • Access capital markets
  • Less awareness
  • Increase in market power
  • Benefit from economies scale and scope
  • Reduce transaction costs

When will the Department of Justice block a merge?

  • HHI if it exceeds 1900 before or after the merger, the merger increases the HHI by 100 points

Performance

  • Profits or social welfare (sum of consumer and producer surplus)
  • Maximized -> perfect competition
  • Dansby- Willig Performance Index
  • The higher the number the greater would be social welfare if the firm expanded output.
  • If zero perfectly competitive, no gains
  • Performance can affect conduct = profit could allow investment in R.T.D.
  • Performance can affect market structure = profit lead to entry
  • Conduct can also affect market structure = low price leads to a small number of firms

Monopoly

  • Single firm
  • Products unique
  • Impossible entry
  • Price B from demand

        Extreme concentration C4 = 1

        Rothschild Index = 1

        The Lerner Index or markup factor are high.

Perfect Competition

  • Many firms
  • Homogenous or perfect substitutes or commodities
  • Price = MC
  • Easy entry
  • Concentration ratio’s close to zero and HHI are low

        Rothschild Index- close to zero

        Mark up factor close to 1 (lowest mark up factor = 1_

        Lerner index should be close to zero

Monopolistic Competition

  • Many firms
  • Slightly differentiated
  • Price a mark up > 1 (same control)
  • Entry easy
  • Concentration ratio (close to zero [low])

Rothschild Index > 0;

Learner index low but not zero

Oligopoly

  • A few larger firms
  • Homogenous or differentiated
  • The price depends on the model
  • Entry-barriers
  • High concentration ratio or high Rothschild Index or Lerner index could be high or low (0-1) Dansby-Willig Index

Practice

4:

  •  /  mark up
  • = 2.86
  • P = 2.86 * 35 = $100

8: Oligopoly

10: Fossey, Inc.

  • Compete against many over firms or highly competitive
  • Earning a return on investment ≈ I -> normal profits

        C4 * HHI Small

        R > 0;  

  • Monopolistic

2/16/1017

16. Five firms HHI = 3025

        Case 27%

        Flat 13%

  • Merger                increase in HHI!
  • x12 + x22 + x32 + 272 + 132 + 402
  • (40)2 - [(27)2 + (13)2]
  • 1600 - [729 + 169]
  • profit max price
  • Elastic Monopoly
  • Inelastic Monopoly

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