Question

Industry A has 10 firms. The five largest firms have 21%, 20%, 19%, 18%, and 17% of the market. The remaining five firms each have 1% of the market. The four-firm concentration ratio for Industry A is 78%. What is the HHI for Industry A?

Answer 1

Answer :

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each of the firms in the industry A.

There are 10 firms in industry A.

The five largest firms in the industry have market shares as 21%, 20%, 19%, 18%, 17% respectively.

Also the remaining the five firms each have 1% of the market.

Therefore HHI = 21^2 + 20^2 + 19^2 + 18^2 + 17^2 + 1^2 + 1^2 + 1^2 + 1^2 + 1^2

HHI = 441 + 400 + 361 + 384 + 289 + 1 + 1 + 1 +1 + 1 = 1820

Answer : 1820 is the HHI for industry A.