Consider two industries, industry Q and industry Z. In industry Q there are 10 companies, each with a market share of 10% of total sales. In industry Z, there are eight companies. One company has a 65% market share and each of the other seven firms has a
market share of 5%.
a. Calculate the four-firm concentration ratio for each industry.
b. Calculate the Herfindahl-Hirschman Index (HHI) for each industry.
a. The concentration ratio in industry Q =10% + 10% + 10% + 10% =40%. The concentration ratio for industry Z = 65% + 5% + 5% + 5% = 80%.
b. The HHI for industry Q = 100 × 10 = 1,000 and the HHI for industry Z = 4,225 + (25 × 7 ) = 4,400.
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