1. Suppose an industry has 4 firms and the firms have 40%, 30%, 20% and 10%...

1. Suppose an industry has 4 firms and the firms have 40%, 30%, 20% and 10% of the market share, what is the HHI index for this industry?

2. If the third and fourth firms in the industry above merge, what is the new HHI index for this industry?

3.What is the largest possible number for HHI index?

4. What is the HHI for the cellular wireless industry?

Solutions

Expert Solution

Q1.Suppose an industry has 4 firms and the firms have 40%, 30%, 20% and 10% of the market share, what is the HHI index for this industry?

Answer:- The HHI is calculated by taking the market share of each firm in the industry, squaring them, and summing the result:

HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where s is the market share of each firm expressed as a whole number, not a decimal)

Consider the following hypothetical industry with four total firms:

Firm one market share = 40%

Firm two market share = 30%

Firm three market share = 20%

Firm four market share = 10%

The HHI is calculated as:

HHI = 40^2 + 30^2 + 20^2 + 10^2 = 1,600 + 900 + 400 + 100 = 3,000

Q2.If the third and fourth firms in the industry above merge, what is the new HHI index for this industry?

Answer:- 3rd and 4th firms means 20% and 10%

20^2 + 10^2 = 400+100 = 500 New HHI Index.

Q3. What is the largest possible number for HHI index?

Answer:- The higher the market's concentration (and the lower its competition). If, for example, there were only one firm in an industry, that firm would have 100% market share, and the Herfindahl-Hirschman Index (HHI) would equal 10,000, indicating a monopoly. If, there were thousands of firms competing, each would have nearly 0% market share, and the HHI would be close to zero, indicating nearly perfect competition.

Q4. What is the HHI for the cellular wireless industry?

Answe:- The merger would increase the concentration of the cellular industry in the United States to 3,320, by the HHI scale, up from 2,744 before. But note that even if AT&T does not acquire T-Mobile, the American wireless market is and will remain highly concentrated. HHI for the cellular wirless industry nothing else to become leader of the market.

jeff jeffy answered 1 year ago

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