The following three FIs dominate a local market and their total assets are given below.
$\begin{array}{lccc}
\text {Institution }& \text { Asset Size}\
\text {Bank A}&\$ 50 \text { million}\
\text {Bank B}& \$ 60 \text { million}\
\text {Bank C}&\$ 90 \text { million}\
\end{array}$
What is the Herfindahl-Hirschman Index (HHI)for the local market?
A)1,000.
B)3,450.
C)3,550.
D)3,400.

Question

The following three FIs dominate a local market and their total assets are given below. 
$\begin{array}{lccc}
  \text {Institution  }&  \text { Asset Size}\
  \text {Bank A}&\$ 50    \text { million}\
  \text {Bank B}& \$ 60   \text { million}\
  \text {Bank  C}&\$ 90  \text {  million}\
\end{array}$
 What is the Herfindahl-Hirschman Index (HHI)for the local market?
A)1,000.
B)3,450.
C)3,550.
D)3,400.

Quizplus · Accepted Answer

HHI = ∑(Market Share)^2

Market share Bank A = 50/200 = 0.25
Market share Bank B = 60/200 = 0.3
Market share Bank C = 90/200 = 0.45

HHI = (0.25)^2 + (0.3)^2 + (0.45)^2 = 0.0625 + 0.09 + 0.2025 = 0.355

HHI x 10,000 = 3,550

Therefore, the correct option is C, which is 3,550.

The Following Three FIs Dominate a Local Market and Their