Suppose that Industry X has two firms with equal market shares, and Industry Y has three firms with 65 percent, 30 percent, and 5 percent market shares, respectively. Which of the following is TRUE?
A) The HHI for Industry X is 50 higher than the HHI for Industry Y.
B) The HHI for Industry X is 150 lower than the HHI for Industry Y.
C) The HHI for Industry X is 100 higher than the HHI for Industry Y.
D) The HHI is the same between Industry X and Industry Y.

Question

Quizplus · Accepted Answer

The HHI for Industry X is 0.5^2 + 0.5^2 = 0.5. The HHI for Industry Y is 0.65^2 + 0.3^2 + 0.05^2 = 0.5525. Therefore, Industry X's HHI is 0.0525 (or 525 in percentage terms) lower than Industry Y's HHI.

Suppose That Industry X Has Two Firms with Equal Market