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: HHI = 30^2 + 20^2 + 10^2 + 10^2 + 10^2 + 5^2 + 5^2 + 5^2 + 5^2 = 900 + 400 + 100 + 100 + 100 + 25 + 25 + 25 + 25 = 1700. An HHI between 1500 and 2500 indicates a moderately concentrated industry.

Consider an Industry That Is Made Up of Nine Firms