Consider an industry that is made up of nine firms each with a market share (percent of sales)as follows:
A.Firm A: 30%
B.Firm B: 20%
C.Firms C, D, and E: 10% each
D.Firms F, G, H, and J: 5% each
What is the value of the Herfindahl-Hirschman Index and how is the industry categorized?
A)1700; moderately concentrated
B)1425; moderately concentrated
C)1600; moderately concentrated
D)2600; highly concentrated

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each firm and then summing the results: (30^2) + (20^2) + (10^2)*3 + (5^2)*4 = 900 + 400 + 300 + 100 = 1700. An HHI between 1500 and 2500 indicates a moderately concentrated industry.

Consider an Industry That Is Made Up of Nine Firms