Question

Question 1:

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.

Answer 1

When these foreign firms export, we can assume one thing that can be related to cheap imports in US' perspective. Due to this the natural demand in the market decreases and no particular domestic firm (or even a foreign firm having office in US) has a dominant market share per se. So, the concentration is diluted in the market giving up space for innovation and incentives to newer players to take down on the cheaper imports.

s_i is the market share and is proportional to the sales in this case. Since all the 3 have equal sales, s_i=constant= 33.33%

HHI = Σs_i² = 33.33²+33.33²+33.33²= 3332.67

C4 cannot be calculated in this case as we have only 3 firms. Instead C3 can be calculated as (33.33+33.33+33.33)/3 = 33.33

Hope this helps. Do hit the thumbs up. Cheers!