Consider an industry that is made up of six firms with the following market shares: Firm A - 50%, Firm B - 20%, Firms C and D - 10% each, and Firms E and F - 5% each.What is the value of the Herfindahl-Hirschman Index and how will the industry be categorized?
A)2,500; mildly concentrated
B)3,150; highly concentrated
C)8,100; highly concentrated
D)10,000; effectively competitive

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. For this industry: HHI = 50^2 + 20^2 + 10^2 + 10^2 + 5^2 + 5^2 = 2500 + 400 + 100 + 100 + 25 + 25 = 3,150. An HHI above 2,500 indicates a highly concentrated industry.

Consider an Industry That Is Made Up of Six Firms