NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
A research analyst compares two cement companies. Company A has a four-firm concentration ratio for its industry of 80% and Company B's industry has a ratio of 30%. Which conclusion is best supported when analysing pricing power and margin stability?
The better supported conclusion is that the industry with the 80% four-firm concentration ratio is likely to show greater pricing discipline. Few dominant players find it easier to avoid price wars, although demand cycles and regulation can still hurt margins.
- ACompany B's industry is likely an oligopoly with greater pricing discipline
- BCompany A's industry is likely to have greater pricing discipline, though regulation and demand cyclicality can still affect marginsCorrect
- CConcentration ratios have no link to pricing behaviour
- DCompany B's industry must have higher barriers to entry than Company A's
Explanation
A high four-firm ratio suggests an oligopolistic structure where few players can coordinate or follow price moves, supporting pricing discipline. It does not guarantee margins, since cyclicality and regulation matter. Option A reverses the inference, and D cannot be concluded from concentration alone.
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