Industry A has two firms that each control 50 percent of the market. Industry B has three firms, where one firm controls 70 percent of the market and the other two firms control 15 percent of the market each. According to the HHI, which industry is more concentrated?

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by summing the squares of the market shares of all firms in the industry. Industry A's HHI is 0.5^2 + 0.5^2 = 0.5. Industry B's HHI is 0.7^2 + 0.15^2 + 0.15^2 = 0.52. Therefore, Industry B is more concentrated.

Industry a Has Two Firms That Each Control 50 Percent