This chapter reveals that different industries have different market structures and require different types of managerial decisions. The structure of an industry, and therefore the job of the manager, is dependent on the number of firms in the industry, the structure of demand and costs, the availability of information, and the behavior of other firms in the industry.

The four-firm concentration ratio is one measure of market structure. If the ratio equals one, the industry is completely controlled by four or fewer firms; if it is zero the industry is perfectly competitive. Another measure of market structure is the Herfindahl-Hirschman Index (HHI), which can range from 10,000 for a monopoly to zero for a perfectly competitive industry. These indices must be used in conjunction with other information, including whether the market is local and whether the firm competes with foreign firms.

Other summary statistics include the Lerner index, the Rothschild index, and the Dansby-Willig index. These indices provide managers with information about industry cost and demand conditions. For instance, the greater the Lerner index in an industry, the greater the ability of a firm in the industry to charge a high markup on its product.

The data presented in this chapter reveals industry-wide differences in activities such as advertising and research and development. The remainder of the book will explain why these differences exist, and the optimal managerial decisions for alternative market structures.