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Suppose there are three firms A, B, and C that shares a market for a good
Suppose there are three firms A, B, and C that shares a market for a good. Firms A and C each have 20% of the market and firm B has 60%. In the course of the year, firm A loses 5% of its share to firm B and 10% to C. Firm B loses 10% to A and 35% to C and firm C loses 10% to A and 5% to B.
Set up a matrix T that displays the changes in market shares and use this matrix to compute the new market shares.
Expert Solution
See below.
| Firm | Beginning | Gain | Loss | Ending (Beginning + Gain - Loss) |
|---|---|---|---|---|
| A | 20% | 10%+10% = 20% | 5%+10% = 15% | 20%+20%-15% = 25% |
| B | 60% | 5%+5% = 10% | 10%+35% = 45% | 60%+10%-45% = 25% |
| C | 20% | 10%+35% =45% | 10%+5% =15% | 20%+45%-15% =50% |
Firm C is thus the new market leader with 50% of the market share.
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