Final answer:
The four-firm concentration ratio measures the total market share of the four largest firms in an industry, while the HHI calculates concentration by summing the squares of the market share of each firm in the industry.
Step-by-step explanation:
The four-firm concentration ratio and the Herfindahl-Hirschman Index (HHI) are both measures of industry concentration, but they differ in how they calculate concentration.
The four-firm concentration ratio measures the total market share of the four largest firms in an industry. It does not take into account the market share of other smaller firms. For example, if the four largest firms in an industry hold 80% of the market share, the four-firm concentration ratio would be 80.
On the other hand, the HHI calculates concentration by summing the squares of the market share of each firm in the industry. It gives greater weight to larger firms, as shown in the earlier example. The HHI provides a more detailed and comprehensive measure of concentration in an industry.