Question

The market share of firms in aviation sector is given as: “Flight Air” – 49%; “Daily Flight” – 13.5%; “Tab Asia” – 14.8%; “Fast Journey” – 11.1%; “Go Fly” – 6.3%; “Vishwa Yatra” – 4.7% and “Others” – 0.6%. (5marks)

1. Calculate four firm concentration ratio and Herfindahl Hirschman Index for aviation sector and comment on the nature of market. Write in the box provided

Answer 1

C-4 ratio sum of the market share of the largest four firms in the sector. In this case these market shares are 49%, 14.8%, 13.5% and 11%. Sum of these market shares is 88.3%. Thus, the concentration ratio for the given market is 8.3 %

Hirschman index or HHI is the sum of squares of market shares of all the firms in the market. It is 49^2 + 13.5^2 + 14.8^2 + 11.1^2 + 6.3^2 + 4.7^2 + 0.6^2 = 2988. Hence HHI is 2988

The market is highly concentrated because HHI is greater 2500. This is also because top 4 firms have a market share of more than 88%.