The 1994 market shares of the firms in the market for paper towels in the United States were: Procter & Gamble 37%, Scott 18%, James River 12%, Georgia-Pacific 11%, Kimberly-Clark 4%, with the remaining 18% spread among several smaller firms. a. Find the HHI for the market. (Note: you must create imaginary market shares for the firms in “Other” when calculating HHIs. The usual practice is to make the shares as large as possible, given that they are at most as large as the smallest listed firm, which in this case was Kimberly-Clark.) b. One way of putting some intuition behind the HHI is to calculate how many equal-sized firms would generate the HHI of some actual industry. To do so, calculate the HHI in terms of fractional market shares (e.g., use .48 instead of 48%, and do NOT multiply the sum by 10,000). Then, for n equal size firms, the HHI = n(si2) = n(1/n)2 = 1/n. Find the number of identical-sized firms that would generate the HHI you found in part a.
The 1994 market shares of the firms in the market for paper towels in the United States were: Procter & Gamble 37%, Scott 18%, James River 12%, Georgia-Pacific 11%, Kimberly-Clark 4%, with the remaining 18% spread among several smaller firms.
a. Find the HHI for the market. (Note: you must create imaginary market shares for the firms in “Other” when calculating HHIs. The usual practice is to make the shares as large as possible, given that they are at most as large as the smallest listed firm, which in this case was Kimberly-Clark.)
b. One way of putting some intuition behind the HHI is to calculate how many equal-sized firms would generate the HHI of some actual industry. To do so, calculate the HHI in terms of fractional market shares (e.g., use .48 instead of 48%, and do NOT multiply the sum by 10,000). Then, for n equal size firms, the HHI = n(si2) = n(1/n)2 = 1/n. Find the number of identical-sized firms that would generate the HHI you found in part a.
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