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Which of the following is true of an industry's Herfindahl-Hirschmann Index (HHI)? 1) A low score indicates a monopolistic market
Which of the following is true of an industry's Herfindahl-Hirschmann Index (HHI)?
1) A low score indicates a monopolistic market.
2) It is used to determine the amount of collusion in an industry.
3) It measures the amount of government involvement in the industry.
4) A high score indicates an oligopolistic market structure.
5) Higher scores indicate increasing power of labor over wages.
Expert Solution
The correct answer is 4) A high score indicates an oligopolistic market structure.
The Herfindahl-Hirschman Index (HHI) is an index that tries to account for the level of market concentration. The higher the index, the less competitive the market is. If the index was 0, then we would be in front of a perfect competitive market.
On the other hand, if we were in front of a monopolistic market, the HHI would reach a value of 10.000. A HHI of more than 2500 would indicate that the market is highly concentrated.
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