Question

Suppose that a company based in​ Dallas, Texas, initially confronts only four other rival firms. Its own market share is ​percent, which ties it with the other largest producer and seller in the industry. The market share of each of the other three firms is percent. Then a sixth​ firm, located in​ Cleveland, Ohio, enters the same industry. The new firm captures percent market​ share, and the market share of one of the smallest three original incumbents declines to percent as well. After the Cleveland​ firm's entry into the​ industry, what are the values of the​ four-firm concentration ratio and of the​ Herfindahl-Hirschman index?

Answer 1

1. 86.7%

2. 2244.4

Step-by-step explanation:

The computation is shown below:

1. The new 4 firm concentration ratio after entry is

= Total mix share of 4 largest firms

= 30% + 30% + 13.33% + 13.33%

= 86.7%

2. Now HHI index is

= sum of squared shares

= 30^2 + 30^2 + 13.33^2 + 13.33^2 + 6.67^2 + 6.67^2

= 2244.4

Hence, we applied the above values so that each part could be determined