Suppose an industry that has 10 firms. Below are the market shares for 2008 and
ID: 1213073 • Letter: S
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
(5 points)
Calculate the Herfindahl-Hirschmann Index (HHI) for 2008 and 2013 (5 points)
Using the CR4, CR8, and HHI, analyze the evolution of the seller concentration in the industry. Has the industry become more or less concentrated? (10 points)
Using the CR4, CR8, and HHI, analyze the evolution of the potential market power of firms in the industry. (10 points)
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
Q1 (a) Calculate Concentration ratio CR4 for 2008 -
CR4 or four-firm concentration ratio is the sum total of percentage market share of 4 largest firms in the market.
CR4 = Market share of firm A + Market share of firm B + Market share of firm C + Market share of firm D
CR4 = 26% + 21% + 16% + 10% = 73%
The concentration ratio CR4 for 2008 is 73%.
(b) Calculate Concentration ratio CR4 for 2013 -
CR4 or four-firm concentration ratio is the sum total of percentage market share of 4 largest firms in the market.
CR4 = Market share of firm A + Market share of firm B + Market share of firm C + Market share of firm D
CR4 = 22% + 23% + 19% + 9% = 73%
The concentration ratio CR4 for 2013 is 73%.
(c) Calculate Concentration ratio CR8 for 2008 -
CR8 or eight-firm concentration ratio is the sum total of percentage market share of 8 largest firms in the market.
CR8 = Market share of firm A + Market share of firm B + Market share of firm C + Market share of firm D + Market share of firm E + Market share of firm F + Market share of firm G + Market share of firm H
CR8 = 26% + 21% + 16% + 10% + 9% + 7% + 4% + 3% = 96%
The concentration ratio CR8 for 2008 is 96%.
(d) Calculate Concentration ratio CR8 for 2013 -
CR8 or eight-firm concentration ratio is the sum total of percentage market share of 8 largest firms in the market.
CR8 = Market share of firm A + Market share of firm B + Market share of firm C + Market share of firm D + Market share of firm E + Market share of firm F + Market share of firm G + Market share of firm H
CR8 = 22% + 23% + 19% + 9% + 8% + 7% + 6% + 4% = 98%
The concentration ratio CR8 for 2013 is 98%.
Q2. (a) Calculate HHI for 2008 -
HHI = (Market share of firm A)2 + (Market share of firm B)2 + (Market share of firm C)2 + (Market share of firm D)2 + (Market share of firm E)2 + (Market share of firm F)2 + (Market share of firm G)2 + (Market share of firm H)2 + (Market share of firm G)2 + (Market share of firm I)2
HHI = (26)2 + (21)2 + (16)2 + (10)2 + (9)2 + (7)2 + (4)2 + (3)2 + (2)2 + (2)2
HHI = 676 + 441 + 256 + 100 + 81 + 49 + 16 + 9 + 4 + 4 = 1,636
The HHI for 2008 is 1,636.
(b) Calculate HHI for 2013 -
HHI = (Market share of firm A)2 + (Market share of firm B)2 + (Market share of firm C)2 + (Market share of firm D)2 + (Market share of firm E)2 + (Market share of firm F)2 + (Market share of firm G)2 + (Market share of firm H)2 + (Market share of firm G)2 + (Market share of firm I)2
HHI = (22)2 + (23)2 + (19)2 + (9)2 + (8)2 + (7)2 + (6)2 + (4)2 + (1)2 + (1)2
HHI = 484 + 529 + 361 + 81 + 64 + 49 + 36 + 16 + 1 + 1 = 1,622
The HHI for 2013 is 1,622.
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