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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 Summary

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

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 ...

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