Question

In: Economics

[Industry Competition] Assume that there are only four companies in the ‘Petroleum Refining’ industry. Table below...

[Industry Competition]

Assume that there are only four companies in the ‘Petroleum Refining’ industry. Table below shows their sales information.

year x	Chevron	Exxon Mobil	Royal Dutch Shell	BP	Total
Annual Sales	$241.91B	$482.30B	$481.70B	$388.29B	$1594.2B
Market Shares	15.2%	30.3%	30.2%	24.4%

To understand market concentration, calculate Hirschman-Herfindahl Index of this industry. Show the process how you calculate HHI.

Note: 15.2% = 0.152, Your answer should be between 0 and 1. Round off your answer to the second decimal (ex: 0.1256 = 0.13).

Assume that there are only four companies in the ‘Wireless telecom’ industry.

year x	Verizon	AT&T	T-mobile	Sprint	Total
Annual Sales	$115.85B	$127.43B	$19.16B	$35.35B	$297.79B
Market Shares	39%	43%	6%	12%

HHI of Wireless telecom industry is 0.35. So which industry is more competitive?

Group of answer choices

-Petroleum Refining industry

-Wireless telecom industry

Expert Solution

Industry - Petroleum Refining

Market share of Chevron = 15.2% or 0.152

Market share of Exxon Mobil = 30.3% or 0.303

Market share of Royal Dutch Shell = 30.2% or 0.302

Market share of BP = 24.4% or 0.244

Calculate the HHI of Petroleum refining industry -

HHI = [Market share of Chevron]² + [Market share of Exxon Mobil]² + [Market share of Royal Dutch Shell]² + [Market share of BP]²

HHI = [0.152]² + [0.303]² + [0.302]² + [0.244]²

HHI = 0.023104 + 0.091809 + 0.091204 + 0.059536

HHI = 0.265653

HHI = 0.27

The HHI of Petroleum Refining Industry is 0.27

Industry - Wireless Telecom

Market share of Verizon = 39% or 0.39

Market share of AT&T = 43% or 0.43

Market share of T-mobile = 6% or 0.06

Market share of Sprint = 12% or 0.12

Calculate the HHI of Wireless Telecom Industry -

HHI = [Market share of Verizon]² + [Market share of AT&T]² + [Market share of T-mobile]² + [Market share of Sprint]²

HHI = [0.39]² + [0.43]² + [0.06]² + [0.12]²

HHI = 0.1521 + 0.1849 + 0.0036 + 0.0144

HHI = 0.35

The HHI of Wireless Telecom Industry is 0.35

Lower value of the HHI of the industry, more competitive is the industry.

The HHI of Petroleum Refining Industry is lower.

Thus,

Petroleumm Refining Industry is more competitive.

Rahul Sunny answered 1 year ago

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