Final answer:
The statement is false; there are three basic strategies for selecting target markets, including undifferentiated, concentrated, and differentiated strategies. It's true that the four-firm concentration ratio emphasizes the largest firms, while the Herfindahl-Hirschman Index considers all firms' market shares in an industry. Both metrics have weaknesses and require careful application.
Step-by-step explanation:
The statement that there are only two basic strategies for selecting target markets, the undifferentiated targeting strategy and the concentrated targeting strategy, is false. There are, in fact, at least three main strategies for target market selection: the undifferentiated (or mass marketing) strategy, the concentrated (or niche marketing) strategy, and the differentiated (or segmented marketing) strategy. The undifferentiated strategy involves targeting the whole market with one product, assuming that all consumers have roughly the same needs and preferences. The concentrated strategy targets a specific segment of the market, focusing on a detailed understanding of that segment's needs. Lastly, the differentiated strategy targets multiple market segments, with different products for each segment.
Regarding the market concentration metrics, it is true that the four-firm concentration ratio tends to emphasize the largest firms in an industry, generally the top four, and how much market share they hold collectively. In contrast, the Herfindahl-Hirschman Index (HHI) gives a more nuanced picture by considering the market shares of all firms in the industry. A higher HHI reflects a market that is less competitive, with a higher level of market share concentrated among fewer firms.
However, both the four-firm concentration ratio and HHI share weaknesses. They assume the market is well-defined and that competitive conditions across industries are uniform enough to use market concentration as a broad measure to assess mergers. Antitrust regulators have been revising their approach to address these issues.
A similar pattern is often observed in business strategies. A company that focuses on a limited range of products, often its core competency, tends to be more successful than those attempting to cater to a wide range of products.