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Consider the tables to the right displaying market share data for the largest firms in two industries
Consider the tables to the right displaying market share data for the largest firms in two industries. Suppose that there are 10 firms in the printer market and 20 firms in the microwave market.
| Printers | |
|---|---|
| Firm | Market Share (%) |
| 1 | 30 |
| 2 | 25 |
| 3 | 15 |
| 4 | 12 |
| Microwaves | |
|---|---|
| Firm | Market Share (%) |
| 1 | 25 |
| 2 | 20 |
| 3 | 18 |
| 4 | 10 |
Two statistics that are often used to assess market power are the four-firm concentration ratio and the Herfindahl-Hirschman index (HHI). Given the data presented here, only the _____ can be calculated.
a. Four-frim concentration ratio
b. HHI
Using the measure of market power identified above the market for _____ is more concentrated.
a. Printers
b.Microwaves
Using the measure of market power identifid above, the market for _____ is more concentrated.
a. Printers
b. Microwaves
Why can't the other measure of market power be calculated?
a. There are too many firms in this market
b. These markets are not concentrated enough
c. It needs the market share for all the firms in the market.
d. There are too few firms in these markets.
Expert Solution
(a) Given that data presented here, only Four firm concentration ratio can be calculated because as mentioned above, calculation of HHI requires the market share of all the firms in the industry.
(b) Four firm concentration ratio is obtained by summing up the market share of the four largest firms in the industry.
For printers Four firm concentration ratio is 30%+20%+15%+12% = 82%
For microwaves Four firm concentration ratio is 25%+20%+18%+10% = 73%
Given the measures, the market for printers is more concentrated.
(c) HHI can't be used to calculate market power because it needs the market share for all the firms in the market.
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