Suppose an industry that has 10 firms. Below are the market shares for 2008 and

Question

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 for year 2008 = 26 + 21 + 16 + 10

CR4 for year 2008 = 73%

CR4 represent the concentration ration of the market capture by four largest firm.     

CR8 for year 2008 = 26 + 21 + 16 + 10 + 9 +7 + 4 + 3

CR8 for year 2008 = 96%

CR8 represents the market share capture by eight largest firms.

CR4 for year 2013 = 22 + 23 +19 + 9

CR4 for year 2013 = 73%

CR8 for year 2013 = 22 + 23 +19 + 9 + +8 + 7 + 6 + 4

CR8 for year 2013 = 98%

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