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Concentration Ratios and the Herfindahl-Hirschman Index

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In both Industry C and D, there are only four firms. Each of the four firms in C industry has a 25 percent market share. The four firms in Industry D have market shares of 80, 10, 5 and 5 percent, respectively.
a. Calculate the three- and four-firm concentration ratios for each industry.
b. Calculate the Herfindahl-Hirschman Index for each industry.
c. Are these industries equally concentrated? Explain your answer.

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Solution Preview

a) The concentration ratio is the total market share of the largest firms in the industry.
In industry C, the 3-firm concentration ratio is 75% and the 4-firm concentration ...

Solution Summary

Definitions of the HHI and concentration ratios, and how to use them to determine which of two industries is more concentrated are determined.