Suppose a small town has seven burger shops whose repective shares of the local

Question

Suppose a small town has seven burger shops whose repective shares of the local hamburger market are (as percentages of all hamburgers sold): 23%, 22%, 18%, 12%, 11%, 8% and 6%. What is the four-firm concentration raitio?

What is the Herfindahl index for the hamburger industry in this town?

If the top three sellers combined to form a single firm, what would happen to the four-firm concentration ratio and to the Herfindahl index?

The four-firm concentration ratio would be:

The Herfindahl index would be:

Explanation / Answer

a)

four firm concentration ratio is 23 + 22 + 18 + 12 = 75%

Herfindahl index = 0.23^2 + 0.22^2 + 0.18^2 + 0.12^2 + 0.11^2 + 0.08^2 + 0.06^2 = 0.1702

b) when the top 3 merge the %ages would be 63, 12, 11, 8 and 6

four firm concentration ratio = 63 + 12 + 11 + 8 = 94%

Herfindahl index = 0.63^2 + 0.12^2 + 0.11^2 + 0.08^2 + 0.06^2 = 0.4334

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