Market shares in the U.S. cola industry are as follows. Define the four-firm con

Question

Market shares in the U.S. cola industry are as follows. Define the four-firm concentration ratio. Compute the four-firm concentration ratio for the cola industry. Show your computation. Define the Hcrfindahl-Hirschman index (HHI). Compute the Hill for the cola industry. Show your computation. According to the U.S. government, what is the classification of the cola industry in terms of "concentration"? Explain your answer. The cola industry is often described as a "duopoly." Explain how this description makes sense, even though there are more than two firms in the industry. Suppose that Coca-Cola and PepsiCo explore a merger of the two companies: also, the five smallest companies consider a merger into one company. Which of these mergers is likely to the approved by the U.S. government? Explain your answer using the HHI concept.

Explanation / Answer

(1)

4-firm concentration ratio (C4) = Market share of top-4 firms / Total market share

= (40 + 30 + 15 + 5)% / 100%

= 90% / 100%

= 0.9

(2)

HHI is a market concentration measure and is computed as the sum of squares of market share occupied by each individual firm. In this case,

HHI = (40)2 + (30)2 + (15)2 + (5)2 + (5)2 + (5)2

= 1,600 + 900 + 225 + 25 + 25 + 25

= 2,800

NOTE: First 2 questions are answered.

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