D2.Eco.4.9-12: Evaluating Competition Among Sellers and Buyers

Overview

Lesson Procedure

65-75 minutes of class time across 5 phases.

1. Warm-Up5-10 minutes
2. Direct Instruction20 minutes
3. Guided Practice15-20 minutes
4. Independent Practice15 minutes
5. Closure10 minutes

1. Warm-Up5-10 minutes

   Warm-Up Prompt

   "Think of the place you would buy a pair of running shoes, and the place you would get a broken phone screen fixed. For each, how many sellers could you really choose from? Now think of a teenager looking for a summer job in your area: how many employers are really competing to hire them?"

   Record answers as rough counts and ask what "really" means: distance, price, time and information all limit the choices. Tell students that D2.Eco.4.9-12 asks them to evaluate how much competition exists, on the sellers' side and on the buyers' side, and that today they will build a scorecard of evidence to do it.

2. Direct Instruction20 minutes

   Market structures for D2.Eco.4.9-12 (working definitions)

   Structure	Sellers' side	Buyers' side
   Many rivals	Perfect competition: many sellers of an identical product, easy entry (for example, wheat farmers)	Many buyers, none large enough to set the price
   Many rivals, different products	Monopolistic competition: many sellers of similar but distinct products (for example, restaurants)	Many buyers who also choose among varied products
   A few large rivals	Oligopoly: a few large sellers; each watches the others' prices	Oligopsony: a few large buyers, such as a few meatpackers buying cattle
   One	Monopoly: one seller with no close substitute	Monopsony: one buyer, such as the only large employer in a town

   Evidence scorecard: questions to ask about any market

   Evidence	What to look for	Measure or example
   Number and size	How many firms, and how large are the biggest?	Four-firm concentration ratio (CR4): the share of sales held by the 4 largest firms
   Spread of shares	Is one firm far larger than the rest?	Herfindahl-Hirschman Index (HHI): the sum of every firm's market share, in percent, squared
   Entry	Can a new rival start easily?	Start-up costs, licenses, networks, patents
   Substitutes and distance	What else can the other side turn to, and how far away?	Travel cost, switching cost, other products
   Behavior	Do firms cut prices, raise offers or innovate to win business?	Price wars, wage offers, new products, or agreements not to compete

   Part 1: Measuring concentration. The CR4 adds the four largest market shares. The HHI squares each firm's share and adds them, so it grows quickly when one firm is very large; it ranges from near 0 (many tiny firms) to 10,000 (one firm with 100%). Some economics textbooks use a rule of thumb that a CR4 above about 40% suggests oligopoly; others use different cutoffs, so students should treat any cutoff as a starting point, not a verdict.

   Part 2: Defining the market. Every measure depends on the market's boundaries. Ask "Which product, and which place?" A national share can hide local power, and a narrow product definition can make competition look weaker than it is. Part 3: The buyers' side. Apply the same questions to buyers. A farmer with one grain buyer nearby, or a worker with one employer in reach, faces little competition among buyers even if the national market is crowded. Work these examples.

   • CR4 and HHI for two gym markets (invented)

     Invented example: Town A has 5 gyms with market shares of 35%, 25%, 20%, 12% and 8%. Town B has 10 gyms with 10% each. Find the CR4 and the HHI for each town, and compare.

     Result: Town A: CR4 = 35 + 25 + 20 + 12 = 92%; HHI = 35² + 25² + 20² + 12² + 8² = 1,225 + 625 + 400 + 144 + 64 = 2,458. Town B: CR4 = 40%; HHI = 10 x 10² = 1,000. Town A is far more concentrated by both measures: its largest gym has more than a third of the market.

   • Defining the market: one theater (invented)

     Invented example: a town's only movie theater sells about 2,000 tickets a week. A second theater 15 minutes away sells about 3,000, and most residents also stream movies at home. Is the town's theater a monopoly?

     Result: In the market for "movie tickets in this town," its share is 100%. In "theater tickets within a 15-minute drive," it is 2,000 / (2,000 + 3,000) = 40%. In "ways to watch a new movie," its share is smaller still. The answer depends on what buyers treat as real substitutes, so a strong evaluation states the market definition and defends it.

   • Competition among buyers: dairy farmers (invented)

     Invented example: dairy farmers in one region could sell milk to only two processing plants within hauling distance. A third plant opens, and the price the plants pay rises from $18.50 to $19.40 per hundredweight (100 pounds). How much more does a farm selling 48,000 hundredweight a year receive?

     Result: $19.40 - $18.50 = $0.90 per hundredweight; 48,000 x $0.90 = $43,200 more a year. With only two buyers, each plant had little reason to raise its offer; a third buyer competing for the same milk pushed the price up. This is buyer competition, the side of the market many students overlook.

   • Entry barriers: food truck or phone network (invented)

     Invented example: starting a food truck costs about $80,000. A new nationwide wireless network would need radio licenses and thousands of towers costing billions of dollars. If a food truck earns $2,000 a month in profit, how long does it take to earn back its start-up cost, and what does the comparison suggest?

     Result: $80,000 / $2,000 = 40 months, a little over 3 years. Easy entry keeps restaurant markets crowded, because a new rival can appear whenever prices or profits rise. High entry costs help explain why the wireless market in Source 3 has a few very large firms.

   Teacher tip. Students often stop at one number. Require at least three kinds of evidence on the scorecard, one of them about the other side of the market, and a sentence that names the market's product and place. Remind them that concentration describes the structure of a market; it does not by itself prove that firms behave badly or that consumers or workers are harmed.

3. Guided Practice15-20 minutes

   Two voices on competition. Context note: John D. Rockefeller founded the Standard Oil Company in 1870. By common historical estimates the company refined about 90 percent of U.S. oil by the 1880s, and critics such as the journalist Ida Tarbell accused it of crushing rivals with secret railroad rebates. Rockefeller wrote Source 1 in 1909, while the federal government's antitrust case against the company was in the courts; in 1911 the Supreme Court ordered Standard Oil broken into separate companies. Charles Whiting Baker, an engineering editor, wrote Source 2 in 1889 in a book that criticized monopolies of every kind, including those he saw among businesses and among organized workers. Read Source 1 and Source 2 in pairs. Glossary: "by-products" (useful goods made while making the main product), "royal road to supremacy" (an easy path to the top), "degenerate" (get worse), "equilibrium" (the point where supply and demand balance), "combination" (here, a group acting together to set prices or wages), "pestilence" (a deadly epidemic, here the Black Death of 1348-1349), "three score" (sixty years old), "an advance on these wages" (more than these wages), "subjugation" (keeping under control).

   1It is a common thing to hear people say that this company has crushed out its competitors. Only the uninformed could make such an assertion. It has and always has had, and always will have, hundreds of active competitors; it has lived only because it has managed its affairs well and economically and with great vigour. To speak of competition for a minute: Consider not only the able people who compete in refining oil, but all the competition in the various trades which make and sell by-products--a great variety of different businesses. And perhaps of even more importance is the competition in foreign lands. The Standard is always fighting to sell the American product against the oil produced from the great fields of Russia, which struggles for the trade of Europe, and the Burma oil, which largely affects the market in India. [...]

   [...]

   2The Standard has not now, and never did have a royal road to supremacy, nor is its success due to any one man, but to the multitude of able men who are working together. If the present managers of the company were to relax efforts, allow the quality of their product to degenerate, or treat their customers badly, how long would their business last? About as long as any other neglected business. [...]

   1Organized workers in many trades have the power to force wages much higher than they have done. Would that the Sugar Refineries Company, and some other monopolies of production, were as moderate in their demands upon the public as are the workingmen. But though their demands are in one sense moderate, it is yet true that in so far as they exceed the amount which the laborer would receive when the market for labor is open to free competition, they are the direct result of the artificial monopoly which the laborers have created by their combination, and, in effect, levy a tax upon the community. To illustrate: let us suppose that if every man were permitted to follow the trade of bricklaying who wished to do so, the equilibrium between supply and demand would be found at a rate of wages of $3.00 per day. [...] But when the rate, which, without prejudice, we call the natural rate, is at $3.00 per day, suppose the men belonging to the trade form a union and resolve to charge $5.00 a day for their work. Then it is very evident that the cost of building is increased, and every one has to pay more for construction and ask a higher rent to repay himself afterward. Evidently, then, by this action of the bricklayers every man in the trade receives $2.00 more per day for each day's work, which must be paid, directly by their employers, but indirectly by the whole community. [...]

   [...]

   2It is a strange thing to trace, in connection with this, the history of labor, and see how recent it is that the natural right of a man to sell his services for such a price as he could obtain has been acknowledged. [...] In England, in the fourteenth century, in the reign of Edward III., a pestilence seriously depopulated the country, and reduced the supply of laborers so much that it was not equal to the demand for labor, and wages began to rise. Laws were therefore enacted that each able-bodied man and woman in the realm, not over three score, "not living in merchandise, nor exercising any craft, nor having of his own whereof to live, nor land about whose tillage he might employ himself, nor serving any other," should be bound to serve at the wages accustomed to be given five years previously. No persons were allowed to pay an advance on these wages, on pain of forfeiting to the Crown double what they had paid. [...]

   3These acts, and others of similar nature, were intended for the subjugation of laborers and the benefit of the employers of labor. [...]

   1. Rockefeller's market definition. Prompt: in Source 1, paragraph 1, which three groups of competitors does Rockefeller list? Teacher note: rival refiners, makers of by-products, and oil producers abroad. Ask: does adding foreign markets make the market larger or smaller, and how does that change the company's share?
   2. Evaluate the claim. Prompt: which evidence in the context note would a critic use against paragraph 1? Teacher note: a share near 90 percent of U.S. refining, accusations of rebates, and the 1911 ruling. Students should name the market each side has in mind: Rockefeller's world oil trade or U.S. refining.
   3. Sellers of labor. Prompt: in Source 2, paragraph 1, what wage does Baker call the "natural rate," and what does the union resolve to charge? Teacher note: $3.00 and $5.00 a day. Then ask pairs which side of the labor market is acting together here, and record their reasoning on the board without settling it. Baker's point of view: he objects to every combination that raises prices or wages above what open competition would set, whether by businesses or by workers, though he calls the workers' demands more moderate than those of the Sugar Refineries Company. His view is one side of a long debate: defenders of unions argue that workers bargaining together balance the power of large employers rather than taxing the community. Students evaluate Baker's argument and its evidence; they are not asked to take a side on unions.
   4. Who the old law covered. Prompt: in paragraph 2, which people were bound by the law, and which were left out? Teacher note: able-bodied men and women up to sixty who had no trade, land or employer of their own; merchants, craftsmen and people with their own means were excluded. Ask: why would a law aimed at wages single out the people who had nothing to sell but their labor?
4. Independent Practice15 minutes

   Real data: how concentrated are U.S. industries? Source 3 is real government data, not invented. It comes from the U.S. Census Bureau's 2022 Economic Census, table "Concentration of Largest Firms" (EC2200SIZECONCEN, census.gov, a US government work). The ratios measure each industry's national sales, shipments or revenue. Diagram 1 graphs the four-firm column.

   Source 3: Number of firms and share of sales held by the 4 and 8 largest firms, selected U.S. industries, 2022 (U.S. Census Bureau, Economic Census)

   Industry (Census name)	Number of firms	4 largest firms	8 largest firms
   Home centers	776	98.0%	98.3%
   Wireless telecommunications carriers (except satellite)	1,184	96.6%	98.1%
   Passenger car rental	2,190	89.6%	91.6%
   Breakfast cereal manufacturing	77	86.6%	93.3%
   Animal (except poultry) slaughtering	1,429	66.0%	79.3%
   Supermarkets and other grocery retailers (except convenience retailers)	41,556	39.2%	52.9%
   General medical and surgical hospitals	2,280	8.4%	13.1%
   Limited-service restaurants	166,733	5.7%	8.8%
   Retail bakeries	7,156	2.6%	4.4%

   Source 3: U.S. Census Bureau, 2022 Economic Census, Establishment and Firm Size Statistics: Concentration of Largest Firms for the U.S. (file EC2200SIZECONCEN, released 2025). Shares are of each industry's sales, value of shipments or revenue.

   Students work alone, then compare: (1) Sort the nine industries into three groups: low, middle and high concentration. Explain where you drew the lines. (2) Pick one high-concentration industry and name one entry barrier that might explain it. (3) For one industry, explain why a national concentration ratio might overstate or understate the competition that a particular buyer faces. Quiz questions 8-10 and 17 use Source 3.

5. Closure10 minutes

   Four local markets. Introduce Source 4, an invented scenario, for the quiz and the homework. Students read it and label each market S (the question is mainly about competition among sellers) or B (mainly among buyers).

   1Invented scenario, written for this page. Cedar Valley is a fictional rural county of about 60,000 people. A county economic development office has asked students to judge how much competition exists in four local markets.

   2Wheat. About 300 farms in the county grow wheat and sell it to grain elevators, which store it and resell it. There used to be three elevators within 30 miles, owned by two companies. Last year Prairie Grain bought its only local rival, so all three now have one owner. The next buyer is a river terminal 85 miles away. This fall Prairie Grain offers $6.10 a bushel; the terminal pays $6.60, and trucking wheat there costs farmers about $0.35 a bushel.

   3Nursing. Cedar Valley Regional Medical Center is the only hospital within 50 miles. It employs 420 of the county's 460 working registered nurses; the rest work for two clinics and the school district. It pays nurses about $36 an hour. Hospitals in Lakeport, a city 70 miles away, pay about $41. A few Cedar Valley nurses commute there, and the hospital sometimes hires traveling nurses through agencies at higher rates.

   4Restaurants. Main Street and the highway exit have 14 restaurants and 5 food trucks. A burger meal costs between $11 and $15. Three restaurants opened in the past two years and two closed. Most owners say they watch each other's prices and specials closely, and a new food truck can start with about $80,000.

   5Home internet. Two companies sell home internet in the county: a cable company that serves about 80% of households and a fixed-wireless company that serves the rest. A satellite service is also available everywhere but costs more and is slower. Building a new cable network would cost tens of millions of dollars. Cable prices have risen about 5% a year for three years.

   Exit ticket: Choose one market in Source 4. In two sentences, rate the competition in it as strong, moderate or weak, and give your two best pieces of evidence.

   Teacher note on the sources: Sources 1 and 2 are quoted exactly as published in 1909 and 1889. Each is an argument: Rockefeller defends his company, and Baker criticizes monopolies of capital and of labor alike. The lesson does not endorse either view, and students should evaluate each claim against evidence. The 90 percent figure is a commonly cited historical estimate, not a statistic from Source 1. Source 3 is real 2022 Census data. Source 4 is invented. The lesson takes no position on any current company, merger, union or law.

Differentiation Strategies

Assessment Guidance

1. Question 1 of 20 · Multiple Choice

   In Source 1, paragraph 2, what does Rockefeller say would happen if the company's managers let quality slip or treated customers badly?

   AThe government would take over the company BIts foreign rivals would buy the company CIt would fail like any neglected business DIts stockholders would elect new directors

2. Question 2 of 20 · Multiple Choice

   Rockefeller says the company has "hundreds of active competitors." What else would you most need to know to evaluate how much competition that shows?

   AThe competitors' market shares BHow many of the competitors were also in Europe CWhether the competitors also made by-products DWhen each competitor was founded

3. Question 3 of 20 · Multiple Choice

   Why should a reader be especially careful in using Source 1 as evidence about competition in the oil industry?

   AIt was written more than a hundred years ago BIt does not mention the oil industry by name CIt contains no numbers at all DIts author had a stake in the claim

4. Question 4 of 20 · Multiple Choice

   Use Source 2, paragraph 1. Invented example: a builder employs 6 bricklayers for 250 days a year. How much more does the builder pay in a year at the union rate than at Baker's "natural rate"?

   A$500 B$3,000 C$1,500 D$7,500

5. Question 5 of 20 · Multiple Choice

   According to Source 2, paragraph 1, who in the end pays the extra wages the bricklayers' union wins?

   AOnly the bricklayers who are not in the union BOnly the government CNobody, because builders absorb the cost DEmployers, then the whole community

6. Question 6 of 20 · Multiple Choice

   According to Source 2, paragraph 2, why had wages begun to rise in fourteenth-century England?

   AA pestilence had cut the labor supply BThe king had ordered higher pay CWorkers had formed new trade unions DNew machines had raised output

7. Question 7 of 20 · Multiple Choice

   In Source 2, paragraph 3, Baker says these acts were meant for "the subjugation of laborers and the benefit of the employers of labor." What does this suggest about who gained when the law stopped employers from competing?

   ALaborers, who were protected from unemployment BThe Crown, which paid all wages CEmployers, who could hire at the old wages DConsumers, who paid less for goods

8. Question 8 of 20 · Multiple Choice

   Use Source 3. In which industry do the firms ranked 5th to 8th hold the largest share of sales?

   AAnimal (except poultry) slaughtering BSupermarkets and grocers CBreakfast cereal manufacturing DGeneral medical and surgical hospitals

9. Question 9 of 20 · Multiple Choice

   Use Source 3. The 4 largest hospital firms hold only 8.4% of U.S. hospital revenue. Why might a patient in a small town still face little competition among hospitals?

   AHospital markets are mostly local BThe figure includes hospitals in other countries CThe 8 largest firms hold over 90% of revenue DHospitals do not compete for patients at all

10. Question 10 of 20 · Multiple Choice

    Use Source 3. What share of breakfast cereal sales do all the firms outside the 4 largest hold together?

    A86.6% B6.7% C73% D13.4%

11. Question 11 of 20 · Multiple Choice

    Use Source 4. A farmer has 40,000 bushels of wheat. About how much more would she net by trucking it to the river terminal instead of selling to Prairie Grain?

    A$20,000 B$14,000 C$6,000 D$0, because hauling costs more than it saves

12. Question 12 of 20 · Multiple Choice

    Use Source 4. About what share of the county's working registered nurses does the medical center employ?

    AAbout 42% BAbout 91% CAbout 46% DAbout 9%

13. Question 13 of 20 · Multiple Choice

    Which detail in Source 4 is the strongest evidence of competition among sellers in the restaurant market?

    AFrequent openings, closings and price watching BA burger meal costs at least $11 CThe county has about 60,000 people DRestaurants are on Main Street and at the highway exit

14. Question 14 of 20 · Multiple Choice

    Use Source 4. Counting only the cable and fixed-wireless companies, what is the HHI for home internet in the county?

    A100 B10,000 C1,000 D6,800

15. Question 15 of 20 · Short Answer

    Evaluate Rockefeller's claim in Source 1 that Standard Oil always faced real competition. Give one piece of evidence that supports it and one that weakens it, and say how the definition of the market affects your judgment.

    Show model answer

16. Question 16 of 20 · Short Answer

    Source 2 describes two ways competition in a labor market was limited. For paragraph 1 and for paragraph 2, say whose competition was limited (sellers or buyers of labor) and how.

    Show model answer

17. Question 17 of 20 · Short Answer

    Use Source 3. Compare wireless telecommunications carriers with limited-service restaurants, using the number of firms and the 4-firm share. Evaluate the extent of competition among sellers in each, and name one thing the table cannot tell you.

    Show model answer

18. Question 18 of 20 · Short Answer

    Evaluate the extent of competition among buyers in Cedar Valley's market for nurses. Use at least two numbers from Source 4, and name one factor that gives nurses more choices.

    Show model answer

19. Question 19 of 20 · Short Answer

    Use Source 4. Evaluate competition among buyers in the wheat market after Prairie Grain's purchase. Explain why Prairie Grain can offer less than the terminal, and what limits how much less it can offer.

    Show model answer

20. Question 20 of 20 · Short Answer

    Rank the four Cedar Valley markets in Source 4 from most to least competitive. Use at least three kinds of evidence from the scorecard, and explain one placement in detail.

    Show model answer

These standards connect to D2.Eco.4.9-12: prerequisites to review first, parallel standards at the same level, and next steps that build on it.

Standard text: National Council for the Social Studies (NCSS), The College, Career, and Civic Life (C3) Framework for Social Studies State Standards: Guidance for Enhancing the Rigor of K-12 Civics, Economics, Geography, and History (Silver Spring, MD: NCSS, 2013). NCSS was not involved in the production of this lesson and does not endorse it.