Question

a.      Calculate the three-firm concentration ratio for the prepared baby-food industry between 2000 and 2008.

b.     Calculate the Herfindahl-Hirschman Index (HHI) for this industry between 2000 and 2008.

c.     Did this industry become more or less concentrated between 2000 and 2008? Explain.

d.     Explain the impact of a merger on market concentration.

Answer 1

The concentration ratio is the one that generally indicates the size of the firms in relation to their industries.When the ratio is nearly 100% ,it means that the firm is a true monopoly.Lower the concentration ratio, greater will be the competition among the firms in that industry.It shows whether an industry is comprised of many small firms or a few large firms.Three firm concentration ratio indicates the percentage of market share that is taken up by three largest firms.In other words it is the market share held by three biggest firms of an industry expressed in percentage.It is calculated as the sum of the market share percentage held by the largest specified number of firms (here 3 firms) in an industry.A concentration ratio that varies from 0% to 50% indicates that the firm is perfectly competitive.Generally , the baby food firms depending on the three firm concentration ratios(CR3) is at a high level which is an indication of monopoly although not pure monopoly.Concentration ratios might differ in the same industrial classifications.Likewise there are four firm cocentration ratio , five firm concentration ratio and eight firm concentration ratio.