# Useful tools for industry analysis

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```					Useful tools for understanding
industry and technology
structures and innovation
opportunity
The goal of a firm?
Is the goal of a firm has to be profit
maximization?
1. The conflict between managers (self-
interests) and stockholders (owners, profit
maximization).
2. The difference on risk taken.
3. Other conflicts (such as stock-sharing
system).

Pursuing sales maximum or market share
maximum?
Sales maximum vs. market share maximum
Measurements of Industrial Structure (1)

1. Numbers of the firm：measure market
power
2. Industry Concentration(產業集中度)：
measure monopoly power
 The four-firm concentration ratio:
4
CR4 = Σ Si ,0 ≦ CR4 ≦ 1
25

第一大廠商
集
20
中                第二大廠商
度
15
第三大廠商
第四大廠商
10

5

0
1

3

5
7

9

11

13
15
17
19

21

23

25
27

29
31

33

35
37

39
41

43

45

47
49

51
廠商數目
Measurements of Industrial Structure (2)
 Gini coefficient (or Lorenze curve)
G = g/2S, 0 ≦ G ≦ 1
g: Mean deviation by all firms in the industry (產業內各廠商的市佔率平均差)
g = 2/n(n-1)【 (n+1) ΣSi - 2 Σ(n-i+1)Si】
S: Arithmetic average of market share in all firms(產業內各廠商市場佔有率的算
術平均數)

 The Gini coefficient, invented by the Italian statistitian Corado Gini,
is a number between zero and one that measures the degree of
inequality in the distribution of income (market power) in a given
society (an industry).
 The coefficient would register zero (0.0 = minimum inequality) for an
industry in which each firm received exactly the same market share
(i.e. perfect competition) and it would register a coefficient of one
(1.0 = maximum inequality) if one firm got all the market share and
the rest got nothing (i.e. monopoly).

can be used to examine the dynamic evolution of an
industry (a society).
Measurements of Industrial Structure (3)

 Herfindahl-Hirschman index (HHI)
n   2
HHI = Σ Si
Si: market share of firm i ( taking the number
instead of percentage ,e.g. market share is 30%, Si
為30)

 "HHI" is a commonly accepted measure of market
concentration. It is calculated by squaring the market
share of each firm competing in the market and then
summing the resulting numbers. For example, for a
market consisting of four firms with shares of thirty, thirty,
twenty and twenty percent, the HHI is 2600 (302 + 302 +
202 + 202 = 2600).
Herfindahl-Hirschman Index
 The HHI takes into account the relative size and distribution
of the firms in a market and approaches zero when a market
consists of a large number of firms of relatively equal size.
The HHI increases both as the number of firms in the market
decreases and as the disparity in size between those firms
increases.

 Markets in which the HHI is between 1000 and 1800 points
are considered to be moderately concentrated, and those in
which the HHI is in excess of 1800 points are considered to
be monopoly. Transactions that increase the HHI by more
than 1000 points in concentrated markets presumptively
raise antitrust concerns under the Horizontal Merger
Guidelines issued by the U.S. Department of Justice and the
Federal Trade Commission. See Merger Guidelines § 1.51 .
Measurements of Industrial Structure (4)

Lerner index
L = (P – MC) /P
P: market price; MC: Marginal cost

When the industry is a perfect competition
market, L = 0
When the industry is a non perfect market, P >
MC, L > 0
Easy approach especially when the boundary
of an industry is interfolded and complicated.

1.    營業收入(operational revenue)
2.    利潤總額 (net/gross profit)
3.    利潤率(profit ratios)
   價格成本差異(price-cost margin): market power of a firm
   淨收入/淨值(net income/equity): 股東權益報酬率 (ROE, return on
equity)
   利潤/銷售額(profit/sales)：銷貨收入的獲利率
   利潤/總資產額(profit/total assets)：總資產報酬率 (ROA, return on
assets)
4.    成長率(Growth rate): sales; market share; profit
5.    其他(others)：專利權數目(number of patents)、新產品多
寡(number of new products)、技術效率(technical
efficiency)、員工生產力(productivity)等衡量。
Technical efficiency
Technical efficiency refers to the ability
of a firm to produce maximum output given
its inputs.

Can be used to evaluate the
performance of supply chain efficiency or
technical efficiency across industries.
Q: Does the larger size company enjoy
greater technical efficiency than the
smaller firms?

 Undividable between machine equipment and
production: high fix costs
 Division of labour (degree of specialization)：
higher productivity
 Physical rule：inputs cost is lower than outputs
cost
 Economy of scale: inventory management,
materials volume purchase
 Technology progress: especially is often
Enter strategy for a new firm
1. 模仿 imitation: same technology, same product,
similar market price
2. 創新 innovation: different technology, different
product, different market price to cause impact
on market share, market structure and
resources allocation.
Q1: What is the best strategy for a new firm?
Q2: Does imitation strategy (e.g. OEM) necessarily
has lower risks than innovation strategy (e.g.
OBM)?
What is the best strategy for a new firm?

1. Firstly, consider the industry cycle: where
are you standing on? (Emerging, Growth,
Mature or Decline stage)
2. External: the competition in the supply
chain; industry concentration and market
power…
3. Internal: Resource acquired capability
(capital, product, cost, personnel,
Measurements of technology structure:
 The formula to measure a country’s (industry A)
RCAi= (Xi, Taiwan/SX, Taiwan) / (Xi, World/SX, World)

RCAi= revealed comparative advantage for good i.
Xi, Taiwan= exports of good i by Taiwan
SX, Taiwan= total exports by Taiwan
Xi, World= world exports of good i
SX, World= total world export

 If RCAi> 1, then Taiwan (or Industry A) has a
 If RCAi< 1, then Taiwan (or Industry A) has a
Measurements of technology structure:
RTAi= (Ti, Taiwan/ST, Taiwan) / (Ti, World/ST, World)

RTAi= revealed technology advantage for technology i.
Ti, Taiwan= patenting number of technology i by Taiwan
(company A)
ST, Taiwan (company A)= total patenting number by Taiwan
(company A)
Ti, World= world patenting number of technology i
ST, World= total world patenting number
What else?
Patents data provides a useful information for understanding
industrial technology structure.
Citation Tree – Patent Number
Citation tree - Authorities
EP, DE, WO and JP cites can now be easily identified within the citation trees.

US            EP            DE            WO
JP only shows up in back cites

Utility:
• find licensing or enforcement opportunities
Citation Tree- IPC ( New technology fields emerging)
IPC analysis clearly demonstrates a new use for a particular
technology and knowledge transformation, moving from the field of
“specialized building structures” (EO4H) to “specialized furniture
construction” (A47B)
Citation tree - Assignees
The citation tree can also be customized by showing the assignee,
document ID, inventor, IPC code, filing/issue date or title for each patent
document

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