Industries X and Y both have four-firm concentration ratios of 32 percent, but the Herfindahl index for X is 256, while that for Y is 264. These data suggest
A) greater market power in X than in Y.
B) greater market power in Y than in X.
C) that X is more technologically progressive than Y.
D) that price competition is stronger in Y than in X.

Question

Quizplus · Accepted Answer

The higher Herfindahl index suggests that there are more firms with significant market share in industry Y than in industry X. This implies that there is likely to be more competition in industry Y and less market power for any individual firm. Therefore, the best choice is B, greater market power in Y than in X.

Industries X and Y Both Have Four-Firm Concentration Ratios of 32