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Firm Concentration Ratio & Merging

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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?

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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%. ...

Solution Summary

Determination of market structure based on concentration ratios and mergers in the solution.