Question

a) How is the concept of concentration in the United States affected by the presence of foreign firms (not foreign firms that have factories or offices in the United States, but foreign firms that produce in their home countries and then export to the United States and are not included in the measures of C4 and HHI). Do these foreign firms tend to increase or reduce the degree of concentration in U.S. industry? Please explain.

b) An industry consists of three firms with equal annual sales. What is the industry's HHI and C4? Please show your calculations.

Why you just posted a "."? these are two questions in details, no other information.

Answer 1

A) Concentration shows how much competiton is in an industry.higher the concentration lower will be competiton in the market .

The foreign firms Increase competiton in US domestic industry,so as result concentration ratio will be lower and competiton will be high.

B)HHI=10,000{ (x1)^2+(x2)^2...(xn)^2}

Where x1 is Market share of first firm.

each firm in this industry has market share=1/3

So this industry HHI=10,000{(1/3)^2+(1/3)^2+(1/3)^2}=10,000{(3*(1/3)^2}=10,000{3*1/9)=10,000*1/3=3333.33

The C4 = market share of top 4 firm in the industry.

Because there is only three firm,so they have the total market share.so,

C4=100