Session 14: Equity Analysis and Valuation Reading 59: Introduction to Industry and Company Analysis
LOS h: Explain the effects of industry concentration, ease of entry, and capacity on return on invested capital and pricing power.
Pricing power for the firms in an industry is most likely to result from low:
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B) |
industry concentration. | |
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Low capacity is associated with pricing power because it increases the likelihood that supply in the short run will be less than demand at current prices. Low barriers to entry and low industry concentration (a fragmented market) typically suggest firms have little pricing power. |