Question

If instead of one major pharmaceutical company there are four major ones with the following sales...

If instead of one major pharmaceutical company there are four major ones with the following sales numbers:

a.  Chemo 6,000

b.  Mercy Me Drugs   5,000

c.  Cancer Free 4,500                 

d.  d. Healthy Again  2000

                        Find the CR2 and HHI.

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Answer #1

(1) Concentration ratio of 2 firms

Two biggest firms Chemo and Mercy me drugs

Total sales of above two firms = 6,000 + 5,000 = 11,000

Total industry sales = 6,000 + 5,000 + 4,500 + 2,000 = 17,500

Concentration ratio = 11,000 / 17,500 = 0.629

Hence CR 2 is 0.629

CR2 means concentration ratio of 2 firms.

(2) HHI = S1​​​​​2 + S2​​​​​2 + S3​​​​​2 + S42

Market share = sales of company / Total sales × 100

Total market share = 6,000 + 5,000 + 4,500 + 2,000 = 17,500

a) Chemo = 6,000 / 17500 × 100 = 34.29%

b) Mercy Me Drugs = 5,000 / 17500 × 100 = 28.57%

c) Cancer free = 4500 / 17500 × 100 = 25.71%

d) Healthy again = 2000 / 17500 × 100 = 11.43%

HHI = (34.29%)2 + (28.57%)2 + (25.71%)2 + (11.43%)2

= 1175.80 + 816.24 + 661 + 130.64 = 2783.68

Herfindahl-Hirschman Index ( HHI ) = 2783.68

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