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Chapter 26: Q.16 (page 599)

Suppose that a firm located in Cleveland, Ohio, has entered the same industry as the Dallas company discussed in Problem 26-14. The new firm captures a 5 percent market share, and the market share of one of the smallest three original incumbents declines to 5 percent as well. After the Cleveland firm's entry into the industry, what are the values of the four-firm concentration ratio and of the Herfindahl-Hirschman index?

Short Answer

Expert verified

the four-firm concentration ratio is 50%

the Herfindahl-Hirschman index is1325

Step by step solution

01

Given Information

Four-firm Concentration Ratio is the proportion of the joined market portions of the four biggest firms to the entire market size determined by adding the market portions of the four biggest firms.

Herfindahl-Hirschman Index is a generally involved proportion of focus in an industry. It is estimated by squaring the market portion of each firm contending in the market and afterward summarizing them.

02

Explanation 

Given, that a firm located in Cleveland, Ohio, has entered the same industry as the Dallas company with a market share of 5%

The market share of one of the smallest three original incumbents declines to5percent

Hence the four-firm concentration ratio is 35+5+5+5=50%

the Herfindahl-Hirschman index is352+4脳52=1225+100=1,325

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