Consider the following firms with the following market shares. First, assuming that there are only these four firms in the industry, identify what the market share for firm D is. Given that shares are expressed as a percentage, what is the HHI? Firm Market Share (%) Firm A 5 Firm B 8 Firm C 22 Firm D X
Question
Consider the following firms with the following market shares. First, assuming that there are only these four firms in the industry, identify what the market share for firm D is. Given that shares are expressed as a percentage, what is the HHI?
Firm Market Share (%) Firm A 5 Firm B 8 Firm C 22 Firm D X
Solution
To find the market share for Firm D, we first need to understand that the total market share for all firms in an industry is 100%. Given that Firm A has a 5% share, Firm B has an 8% share, and Firm C has a 22% share, we can add these together to find the total market share for these three firms.
5% (Firm A) + 8% (Firm B) + 22% (Firm C) = 35%
Since the total market share is 100%, we can subtract the combined market share of Firms A, B, and C from 100% to find the market share for Firm D.
100% - 35% = 65%
So, Firm D has a 65% market share.
The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. It's calculated by squaring the market share of each firm in the industry and then summing the results.
So, to calculate the HHI for this industry, we square the market share of each firm and then add them together:
(5^2) + (8^2) + (22^2) + (65^2) = 25 + 64 + 484 + 4225 = 4798
So, the HHI for this industry is 4798.
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