Part II Suppose an industry that has 10 firms. Below are the market shares for 2
ID: 1213301 • Letter: P
Question
Part II
Suppose an industry that has 10 firms. Below are the market shares for 2008 and 2013 of the 10 firms.
Market Share
Firms
2008
2013
A
B
C
D
E
F
G
H
I
G
26%
21%
16%
10%
9%
7%
4%
3%
2%
2%
22%
23%
19%
9%
8%
7%
6%
4%
1%
1%
Calculate the concentration ratio CR4 and the concentration ratio CR8 for 2008 and 2013
Calculate the Herfindahl-Hirschmann Index (HHI) for 2008 and 2013
Using the CR4, CR8, and HHI, analyze the evolution of the seller concentration in the industry. Has the industry become more or less concentrated?
Using the CR4, CR8, and HHI, analyze the evolution of the potential market power of firms in the industry.
Market Share
Firms
2008
2013
A
B
C
D
E
F
G
H
I
G
26%
21%
16%
10%
9%
7%
4%
3%
2%
2%
22%
23%
19%
9%
8%
7%
6%
4%
1%
1%
Explanation / Answer
CR4: 2008
A+B+C+D = 26+21+16+10 = 73%
CR4: 2013 = 22+23+19+9 = 69%
CR8: 2008
A to H = 96%
CR8: 2013
A to H = 98%
Herfindahl-Hirschmann Index (HHI) 2008
HHI = 26^2 + 21^2 + …….2^2)
HHI = 676 + 441 + 256 + 100 + 81 + 49 + 16 + 9 + 4 + 4 = 1,636
Herfindahl-Hirschmann Index (HHI) 2013
HHI = 484 + 529 + 361 + 81 + 64 + 49 + 36 + 16 + 1 + 1 = 1,622
Seller concentration:
Since the CR4 for 2008 and 2013 shows figures above 60 there is a tight market that has significant potential for exercise of market power.
Market power:
Since the HHI for 2008 and 2013 is between 1000 and 2000, there is loose oligopoly that probably will not result in significant exercise of market power by sellers.
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