Suppose that a small town has seven burger shops whose respective shares of the

Question

Suppose that a small town has seven burger shops whose respective shares of the local hamburger market are (as percentages of all hamburgers sold): 25%, 24%, 20%, 12%, 9%, 6%, and 4%.

Instructions: Enter your answers as whole numbers.

a. What is the four-firm concentration ratio of the hamburger industry in this town? %.

b. What is the Herfindahl index for the hamburger industry in this town? .

c. If the top three sellers combined to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index?

     The four-firm concentration ratio would be %.

     The Herfindahl index would be .

Explanation / Answer

a) Four-firm concentration ratio = 25% + 24% + 20% + 12% = 81%

b) HHI = 252 + 242 + 202 + 122 + 92 + 62 + 42

           = 625 + 576 + 400 + 144 + 81 + 36 + 16

           = 1878

c) If the top three sellers combined, the total market share = 25% + 24% + 20% = 69%

The four-firm concentration ratio = 69% + 12% + 9% + 6% = 96%

HHI = 692 + 122 + 92 + 62 + 42

           = 4761 + 144 + 81 + 36 + 16

           = 5038

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