In the HIV drug market, Gilead leads the way. Its products Truvada has sales of
ID: 1169307 • Letter: I
Question
In the HIV drug market, Gilead leads the way. Its products Truvada has sales of $3.1 billion. Stribild ($205 million), Complera ($800 million), Viread ($958 million), and Antripla ($3.6 billion). Note that 2 of these drugs are joint ventures. Complera is a joint venture with Johnson & Johnson. Johnson & Johnson’s other HIV products are Prezista ($1.7 billion) and Intelence ($0.3 billion). The other Gilead joint venture is Antripla where proceeds are shared with Bristol-Myers. The other Bristol-Myers HIV drugs are Sustiva ($2.4 billion) and Reyatac ($2.3 billion) Note: for joint ventures assume revenue is divided 50-50. Solve for the HH Index in the HIV drug industry. Show your solution.
Explanation / Answer
Definion of HH index:
A commonly accepted measure of market concentration. It is calculated by squaring the market share of each firm competing in a market, and then summing the resulting numbers. The HHI number can range from close to zero to 10,000. The HHI is expressed as:
HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where sn is the market share of the ith firm).
The closer a market is to being a monopoly, 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 HHI would equal 10,000 (100^2), indicating a monopoly. Or, 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.
There are three firms in the HIV drug industry namely
Total revenues =$15.363 billion
Gilead revenues : =3.1+0.205+0.4+0.958+1.8 = $6.463 billion (market share =42.07%)
Johnson revenues = =1.7+0.3+0.4 = $2.4 billion (market share =15.62%)
Bristol revenues = =2.4+2.3+1.8 = $6.5 billion (market share =42.31%)
HH = (42.07)^2 + (15.62)^2 + (42.31)^2
= 3,804