Please answer the 4 questions below. Suppose an industry that has 10 firms. Belo
ID: 2742664 • Letter: P
Question
Please answer the 4 questions below.
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%
1. Calculate the concentration ratio CR4 and the concentration ratio CR8 for 2008 and 2013
2. Calculate the Herfindahl-Hirschmann Index (HHI) for 2008 and 2013
3. Using the CR4, CR8, and HHI, analyze the evolution of the seller concentration in the industry. Has the industry become more or less concentrated?
4. 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
2008 2013 1) CR4 & CR8: CR4 26+21+16+10 73 22+23+19+9 73 CR8 26+21+16+10+9+7+4+3 96 22+23+19+9+8+7+6+4 98 2) Herfindahl-Hirschmann Index: 26^2+21^2+16^2+10^2+9^2+7^2+4^2+3^2+2^2+2^2 1636 22^2+23^2+19^2+9^2+8^2+7^2+6^2+4^2+1^2+1^2 1622 3) The concentration of the industry is more or less static as the above ratios indicate. The CR4 is same; CR8 has risen marginally and HHI has decreased which decrease is not significant. 4) As the HHI is between 1000 and 1800, it is a moderately concentrated market place. This is supported by the CR4 of 73%. Hence, the market power has remained more or less the same.