Industry A has four firms that each control 25 percent of the market. Industry B has six firms, where one firm controls 50 percent of the market and the other five firms control 10 percent of the market each. According to the HHI, which industry is more concentrated?

A) Industry A
B) Industry B
C) Both industries are equally concentrated.
D) indeterminate from the given information.

Question

Adrian Operio · Accepted Answer

Final Answer : B, Explanation :  The Herfindahl-Hirschman Index (HHI) is calculated by summing the squares of the market shares of all firms in the industry. For Industry A, HHI = 4*(25^2) = 2500. For Industry B, HHI = 50^2 + 5*(10^2) = 2500 + 500 = 3000. Therefore, Industry B is more concentrated.

Definitions

Learning Objectives

Learning Objectives

Related questions