Define the four-firm concentration ratio. Compute the four-firm concentration ra
ID: 1200193 • Letter: D
Question
Define the four-firm concentration ratio. Compute the four-firm concentration ratio for the cola industry. Show your computation. 2. Define the Hcrfindahl-Hirschman index (HHI). Compute the IIIII for the cola industry. Show your computation. 3. According to the U.S. government, what is the classification of the cola industry in terms of "concentration"? Explain your answer. 4. The cola industry is often described as a "duopoly." Explain how this description makes sense, even theugh there arc more than two firms in the industry. 5. Suppose that Coca-Cola and PepsiCo explore a merger of the two companies: also, the five smallest companies consider a merger into one company. Which of these mergers is likely to be approved by the U.S. government? Explain your answer using the Hill concept.Explanation / Answer
1. The Four Firm Concentration Ratio is calculated as follows:
The market shares of the first four firms will have to be summed in order to calcuate the four firm concentration ratio
40+30+15+5 = 90%.
2. The HHI index in calculated by the sum of the squares of the market shares of all the companies that are involved in the business.
(40)2+(30)2+(15)2+(5)2+(5)2+(5)2
= 1600+900+225+25+25+25
= 2800
The Herfindahl-Hirschman Index = 2800
3. According to the US government, the classification of Cola Industry in terms of concentration is computed from the values obtained in the HHI index. Since the HHI value is more than 1500 ( value given by US Government of Justice), it is clearly evident that the market for Cola is highly concentrated . When the concentration is high then the industry within which the companies are competing are viewed either as Oligopolistic or Monopolistic.
4. The market for Cola industry in often referred to as Duopoly since, the market share of the cola industry is majorly shared by two main giants Coca Cola and Pepsi Co. Even though there are other firms that are competing in the Cola Market, they have not been able to be successful in gaining the market share. The competition being very tough among the two companies, the Cola Industry is always referred to as Duopoly.
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