The table represents the market share of the top eight firms in a hypothetical i

Question

The table represents the market share of the top eight firms in a hypothetical industry in 2006 and 2011

Using the graph below answer these questions

a.) Calculate the four-firm concentration ratios for 2006 and 2011. Analyze the industry changes during this five-year period.

b.) Calculate the eight-firm concentration ratios for 2006 and 2011. Does this index give you any different indication about changes in the industry over the same period?

c.) Calculate the Herfindahl-Hirschman Indexes for 2006 and 2011. What information does this index tell you about changes in the industry? How does this information differ from the four-firm and eight-firm indexes?

d.) Hypothesize what you think might have happened to supply, demand, and price of products in this industry from 2006 to 2011. Use charts, if appropriate, to illustrate your response

Firm

Market Share 2006

Market Share 2011

A

10%

32%

B

8%

5%

C

12%

12%

D

20%

29%

E

21%

9%

F

2%

1%

G

5%

4%

H

6%

2%

Firm

Market Share 2006

Market Share 2011

A

10%

32%

B

8%

5%

C

12%

12%

D

20%

29%

E

21%

9%

F

2%

1%

G

5%

4%

H

6%

2%

Explanation / Answer

a)For 2006: C4= 10+8+12+20= 50%
For 2011: C4= 32+9+12+29 = 82%
There is more concentration now as the top 4 firms contribute 82% rather than 50% to total sales of industry
b)For 2006: C8= 10+8+12+20+21+2+5+6= = 74%
For 2011: C8= 32+5+12+29 +9+1+4+2 = 94%

There is more concentration now as the top 8 firms contribute 94% rather than 74% to total sales of industry

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