In a perfectly balanced oligopoly (with eight firms, all having the same market share), if any one firm captures 1 percent of the market from one of the others,
A) c and d
B) the eight-firm concentration ratio will increase
C) the eight-firm concentration ratio will decrease
D) the Herfindahl-Hirschman index will rise
E) the Herfindahl-Hirschman index will fall

Question

Quizplus · Accepted Answer

In a perfectly balanced oligopoly, if one firm captures 1 percent of the market from another, the Herfindahl-Hirschman Index (HHI), which measures market concentration and competition, will rise. This is because the HHI is calculated based on the sum of the squares of the market shares of all firms in the industry. A transfer of market share to one firm increases its square, thus increasing the HHI.

In a Perfectly Balanced Oligopoly (With Eight Firms, All Having