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): 23%, 22%, 18%, 12%, 11%, 8%, and 6%. 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) C4 = 23% + 22% + 18% + 12% = 75%

(b) HHI = (23)2 + (22)2 + (18)2 + (12)2 + (11)2 + (8)2 + (6)2 = 529 + 484 + 324 + 144 + 121 + 64 + 36 = 1,702

(c) In this case, market shares will be: (23 + 22 + 18)% (or 63%), 12%, 11%, 8%, 6%.

C4 = (63 + 12 + 11 + 8)% = 94%

HHI = (63)2 + (12)2 + (11)2 + (8)2 + (6)2 = 3,969 + 144 + 121 + 64 + 36 = 4,334

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