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Firm Concentration Ratio & Merging

There are six firms in the industry. Suppose their sales in the year 2006 are as

Firm Sales (10 millions of dollars)
A 100
B 80
C 50
D 40
E 40
F 20

1. What is the concentration ratio in the industry
(a) if you use the four-firm concentration ratio;
(b) if you use the HHI index.

2. Would you regard this industry as oligopolistic? Why or why not?

3. Suppose that firm A merges with firm F. What now will be the concentration ratio in the industry?

4. Suppose that after they merge, firms A and F go out of business. What now will be the concentration ratio in this industry?

Solution Preview

The concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. Here we have a total industry worth 330 million. The top four firms control 270 million, which is 82%.
Herfindahl-Hirschman Index ...

Solution Summary

Determination of market structure based on concentration ratios and mergers.