Question

Given all Kansas City hospital revenues in 2016:

U of Kansas hospital $6 billion

St. Lukes $3 billion

Shawnee Mission $2 billion

North Kansas CIty Medical $1.6 billion

Children's Mercy $1.2 billion

Solve for the HH Index.

If the HH Index of hospitals in St. Louis = 0.235, which of these 2 cities (KC or St. Louis) has a more competitive hospital industry?

Answer 1

Total sales = 6 + 3 + 2 + 1.2 + 1.6 = 13.8 billion

HH index gives the sum of squared market shares of all the firms in the industry

= (6/13.8)^2 + (3/13.8)^2 + (2/13.8)^2 + (1.6/13.8)^2 + (1.2/13.8)^2

= 0.278

If the HH Index of hospitals in St. Louis = 0.235 and that in Kansas city is 0.278, we see that HHI index is greater

for hospitals in Kansas city. Hence it is St. Louis that has more competition because the value of HHI is closer to 0

relative to Kansas city.