Economics (MindTap Course List)
13th Edition
ISBN: 9781337617383
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 25, Problem 1WNG
To determine
Determine Herfindahl index and four-firm concentration ratio.
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Suppose that a small town has six burger shops whose respective shares of the local market are (as percentages of all hamburgers sold): 26%, 20%, 18%, 14%, 12%, 10%,
What is the four-firm concentration ratio of the hamburger industry and what is the Hirchmann Herfindahl Index (HHI) for the hamburger industry in this town?
what is the Four-firm concentration ratio (CR4)?
what is the Herfindahl-Hirshman Index (HHI)?
and how are they different?
Is it true that a merger between two firms that are not already in the top four by size can affect both the four-firm concentration ratio and the Her findahl-Hirshman Index? Explain briefly.
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Economics (MindTap Course List)
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- Consider an industry consists of three firms (Firm-A, Firm-B and Firm-C) with sales of AED300,000, AED700,000, and AED250,000; respectively. Calculate the Herfindahl-Hirschman index (HHI) for the industry. Calculate the four-firm concentration ratio (C4). Do you think the ‘Department of Justice’ (see the guideline below) would attempt to block a horizontal merger between Firm-A and Firm-C)? The Department of Justice’s Guidelines (Suppose): Suppose that the Department of Justice’s Guidelines suggest that antitrust authorities are more likely to challenge a merger when the relevant Herfindahl-Hirschman index is greater than 2,500 and the resulting increase in the index as a result of the merger is more than 200.arrow_forwardThe following table presents information on the production of five firms that produce all of the output in an industry. Firm Output (units) A 600 B 600 C 500 D 500 E 500 Instructions: Round your answers to two decimal places. a. What is the four-firm concentration ratio for this industry? % b. What is the Herfindahl-Hirschman Index for this industry?arrow_forwardSuppose that the most popular car dealer in your area sells 10 percent of all vehicles. If all other car dealers sell either the same number of vehicles or fewer, what is the largest value that the Herfindahl index could possibly take for car dealers in your area? In that same situation, what would the four-firm concentration ratio be?arrow_forward
- Suppose an industry consists of three firms. Two firms have sales of $10 each, and one firm has sales of $30. What is the Herfindahl-Hirschman index for this industry? What is the four-firm concentration ratio?arrow_forwardThe tables below list the market shares held by the major firms in college dining hall and coffee shop industries. Calculate the four firm industry concentration ratio for each industry, then determine which industry is more concentrated. Concentration ratio ______% Concentration ratio _______%arrow_forwardFirm Market Share (%) A 18 B 17 C 17 D 17 E 16 F 15 Refer to the data. Suppose that firms in this industry split up such that there were 20 firms, each with a 5 percent market share. The four-firm concentration ratio and the Herfindahl index respectively would bearrow_forward
- "The Herfindahl-index (HHI) is empty and obscure, giving little clear basis for assessing the degree of actual market power". "The HHI is more broadly based and accurate than simple four-firm concentration ratios". a. Are both statements true? b. Is one ratio generally better? Explain with examples.arrow_forwardFirm Market Share (%) A 30 B 29 C 16 D 12 E 7 F 6 Refer to the data. Suppose that firms A and F merged into a single firm. The four-firm concentration ratio and the Herfindahl index would be Multiple Choicearrow_forwardThe four firm concentration ratio for this industry is whatarrow_forward
- An industry consists of three firms with sales of $300,000, $700,000 and $250,000. a) Calculate the Herfindahl-Hirschman Index (HHI) b) Calculate the four-firm concentration ratio c) Based on the FTC and DOJ Horizontal Merger Guidelines described in the text, do you think that the Department of Justice would attempt to block a horizontal merger between two firms with sales of $300,000 and $250,000? Explain.arrow_forwardBased on United States Census Bureau data for 2017, for the utilities (electricity and gas) industry the four firm concentration ratio (C4) is 16.2 percent and the Herfindahl-Hirschman index is 161.4. Why might the actual concentration, and therefore market power enjoyed by a specific utility company in a state, be greater than what is indicated by these numbers? These ratios are calculated for the entire country, and not for a specific city or state. Please give an explanation.arrow_forwardThe four-firm concentration ratios for industries X and Y are 81 percent and 74 percent, respectively, while the corresponding Herfindahl-Hirschman indexes are 3,100 and 1,600. The Dansby-Willig performance index for industry X is 0.7, while that for industry Y is 0.55. Based on this information, which would lead to the greater increase in social welfare: a slight increase in industry X’s output or a slight increase in industry Y’s output?arrow_forward
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