To calculate the Herfindahl-Hirschman Index (HHI) for this market, we need to square the market shares of each firm and sum them up.
break it down step-by-step:
1. Start with the 17 firms that have a 5% market share each. We square 5% to get 0.05 * 0.05 = 0.0025.
2. Multiply 0.0025 by 17 (the number of firms with a 5% market share) to get 0.0425.
3. Next, you calculate the HHI contribution of the firm with a 13% market share. We square 13% to get 0.13 * 0.13 = 0.0169.
4. Multiply 0.0169 by 1 (since there is only one firm with a 13% market share) to get 0.0169.
5. Lastly, you calculate the HHI contribution of the firm with a 2% market share. We square 2% to get 0.02 * 0.02 = 0.0004.
6. Multiply 0.0004 by 1 (since there is only one firm with a 2% market share) to get 0.0004.
7. Now, sum up the contributions from all the firms: 0.0425 + 0.0169 + 0.0004 = 0.0598.
Therefore, the Herfindahl-Hirschman Index (HHI) for this market is 0.0598.
The HHI measures market concentration, with higher values indicating greater concentration. In this case, the calculated HHI is relatively low, suggesting that the market is not highly concentrated.