Industry X has four firms. The largest firm in Industry X has more than 90 percent of the market share. Industry Y also has four firms, but each of those four firms in Industry Y has 25 percent of the market share. The Herfindahl-Hirschman index will be

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman index (HHI) is higher for Industry X because it is dominated by one firm with over 90% market share, leading to a higher concentration. The four-firm concentration ratio is the same for both industries as both have four firms.

Industry X Has Four Firms