Editing Imperfect competition (section)

== Intensity of price competition ==

The intensity of [[price competition]] is another good measure of how much control a firm within a market structure has over price. The '''Herfindahl Index''' provides a measure of firm concentration within a market and is the '''sum of the squared market shares of all the firms in the market''' (Herfindahl Index = (S<sub>i</sub>)<sup>2</sup>, where S<sub>i</sub> = market share of firm i) . Large companies are given more weight in the index (unlike the N-concentration ratio).<ref>{{Cite book |last=Besanko |first=David |title=Economics of Strategy |publisher=Hoboken, NJ : John Wiley & Sons |year=2012 |isbn=9781118273630 |location=the United States of America |pages=171–172 |edition=6th |language=English}}</ref> The value of the index ranges from 1/N to 1 (where ''N'' is the number of firms in the market). Thus, the more concentrated the market is, the larger the value of the Herfindahl Index will be.<ref name=kifle5/> The table below provides an overview of price competition and intensity in the four main classes of market structure.

{| class="wikitable"
|+ Price competition intensity in four classes of market structure
|-
! Market structure !! Range of Herfindahls !! Intensity of price competition  
|-
| Perfect competition || Below 0.20 || Fierce
|-
| Monopolistic competition || Below 0.20 || Depending on product differentiation, intensity may be light or fierce
|-
| Oligopoly || 0.20 to 0.60 || Depending on interfere rivalry, intensity may be light or fierce
|-
| Monopoly || Above 0.60 || Light or nil

|}<ref name=kifle5/>