3. Suppose we have two markets, A and B, each consisting of seven firms. The market shares of the 5 largest firms (ordered by market share) are shown in the table below. Firm rank Market share (%) Market A Market B 20 22 20 20 3 20 20 20 15 15 15 Select the false statement. The CR3 and CR4 concentration ratios both point to the same market (either A or B) having more market power. The 6th largest firm in market B captures less than 8 percent of the market. The HHI of market B is at most 1,798 (in units of squared percent). (Hint: for positive x and y, (r + y)2 = 2? + y? + 2xy 2 z? + y².) The HHI of market A is definitely larger than the HHI of market B. More than one statement are false. All statements are true.

3. Suppose we have two markets, A and B, each consisting of seven firms. The market shares of the 5 largest firms (ordered by market share) are shown in the table below. Firm rank Market share (%) Market A Market B 20 22 20 20 3 20 20 20 15 15 15 Select the false statement. The CR3 and CR4 concentration ratios both point to the same market (either A or B) having more market power. The 6th largest firm in market B captures less than 8 percent of the market. The HHI of market B is at most 1,798 (in units of squared percent). (Hint: for positive x and y, (r + y)2 = 2? + y? + 2xy 2 z? + y².) The HHI of market A is definitely larger than the HHI of market B. More than one statement are false. All statements are true.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter15: Economic Regulation And Antitrust Policy

Section: Chapter Questions

Problem 4.7P

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Suppose we have two markets, A and B, each consisting of seven firms. The market shares of the 5 largest firms (ordered by market share) are shown in the table below. True or false? (i) The CR3 and CR4 concentration ratios both point to the same market (either A or B) having more market power. (ii) The 6th largest firm in market B captures at most 8 percent of the market. (iii) The HHI of market B is at most 1,798 (in units of squared percent). (Hint: for positive x and y, (x+y)2=x2+y2+2xy≥x2+y2.) (iv) The HHI of market A is definitely larger than the HHI of market B.
Consider a market with four firms. Suppose the first firm has a 39% market share, the second firm has a 30% market share, the third firm has a 20% market share, and the fourth firm has a 11% market share. Using the Herfindahl-Hirschman Index (HHI), what is this market's level of concentration? Now suppose the third and fourth firms propose to merge. Were they to merge, then the market's HHI would increase to? Given the increase in the HHI that would be caused by the proposed merger, would the government likely allow such a merger to occur?
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