Microeconomics (7th Edition)
7th Edition
ISBN: 9780134737508
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 14, Problem 14.4.6PA
To determine
Determinant of firms successful.
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Suppose that three firms make up the entire wig manufacturing industry. One has a 50% market share, and the other two have a 25% market share each.
The Herfindahl index of this industry is a. 3,750
b. 1,000
c. 10,000
d. 5,000
e. 2,500
Mane Attraction, one of the firms with a 25% market share in the wig manufacturing industry, leaves the market. This would cause the Herfindahl index for the industry to __--
a. remain the same
b. fall
c. rise
The largest possible value of the Herfindahl index is 10,000 because:
a. an index of 10,000 corresponds to 100 firms with a 1% market share each
b. an index of 10,000 corresponds to a monopoly firm with 100% market share
c. an industry with an index higher than 10,000 is automatically regulated by the Justice
Department
B.A measure called Herfindahl-Hirschman Index is used to measure the degree of competition in
an industry. The HHI is the square of each firm's market share summed over the firms in the
industry. (Where market share is the percentage of sales in the market accounted for by that
firm). For example, if an industry contains only three firms and their market shares are 60%,
25%, and 15% then the HHI (by squaring each firm's share and summing them) is 4450. Some
economists classify the market structures according to HHI scores. An HHI below 1,500
indicates astrongly competitive market, between 1,500 and 2,500 indicates a somewhat
competitivemarket, and over 2,500 indicates an oligopoly.
Given the information in the table, calculate the HHI in this industry. If yahoo and Bing were to
merge, what would the HHI be?
Search engine Market share
Google
67%
Bing
18
Yahoo!
11
Activate Windo
Go to Settings to act
Ask
3
AOL
1
Chapter 14 Solutions
Microeconomics (7th Edition)
Ch. 14 - Prob. 14.1.1RQCh. 14 - Prob. 14.1.2RQCh. 14 - Prob. 14.1.3RQCh. 14 - Prob. 14.1.4PACh. 14 - Prob. 14.1.5PACh. 14 - Prob. 14.1.6PACh. 14 - Prob. 14.1.7PACh. 14 - Prob. 14.1.8PACh. 14 - Prob. 14.1.9PACh. 14 - Prob. 14.1.10PA
Ch. 14 - Prob. 14.2.1RQCh. 14 - Prob. 14.2.2RQCh. 14 - Prob. 14.2.3RQCh. 14 - Prob. 14.2.4RQCh. 14 - Prob. 14.2.5PACh. 14 - Prob. 14.2.6PACh. 14 - Prob. 14.2.7PACh. 14 - Prob. 14.2.8PACh. 14 - Prob. 14.2.9PACh. 14 - Prob. 14.2.10PACh. 14 - Prob. 14.2.11PACh. 14 - Prob. 14.2.12PACh. 14 - Prob. 14.2.13PACh. 14 - Prob. 14.2.14PACh. 14 - Prob. 14.2.15PACh. 14 - Prob. 14.2.16PACh. 14 - Prob. 14.2.17PACh. 14 - Prob. 14.2.18PACh. 14 - Prob. 14.3.1RQCh. 14 - Prob. 14.3.2RQCh. 14 - Prob. 14.3.3PACh. 14 - Prob. 14.3.4PACh. 14 - Prob. 14.3.5PACh. 14 - Prob. 14.3.6PACh. 14 - Prob. 14.4.1RQCh. 14 - Prob. 14.4.2RQCh. 14 - Prob. 14.4.3PACh. 14 - Prob. 14.4.4PACh. 14 - Prob. 14.4.5PACh. 14 - Prob. 14.4.6PACh. 14 - Prob. 14.4.7PACh. 14 - Prob. 14.4.8PACh. 14 - Prob. 14.2CTECh. 14 - Prob. 14.3CTE
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- .A measure called Herfindahl-Hirschman Index is used to measure the degree of competition in an industry. The HHI is the square of each firm’s market share summed over the firms in the industry. (Where a market share is the percentage of sales in the market accounted for by that firm). For example, if an industry contains only three firms and their market shares are 60%, 25%, and 15% then the HHI (by squaring each firm’s share and summing them) is 4450. Some economists classify the market structures according to HHI scores. An HHI below 1,500 indicates a strongly competitive market, between 1,500 and 2,500 indicates a somewhat competitive market, and over 2,500 indicates an oligopoly. Given the information in the table, calculate the HHI in this industry. If yahoo and Bing were to merge, what would the HHI be? Google 67% Yahoo 18 Bing 11 Ask 3 AOL 1arrow_forwardDiscuss the formation of collusion. Why is it beneficial for firms? What is the main observed problems of collusion? You can use graph in your answer.arrow_forwardBased on the figure below, which one is true about the 'Gym Accessories' industry? Gym Accessories 500 450 400 Sales (Million) 350 300 250 200 150 100 50 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Year O In 2007, market growth and rivalry were both low. O In 2007, market growth was low and rivalry was high O In 2015, market growth was low and rivalry was high. O In 2015, market growth and rivalry were both high.arrow_forward
- Relate why firms can benefit from their innovation even though rivals have an incentive to imitate it.arrow_forwardSuppose that three firms make up the entire wig manufacturing industry. One has a 50% market share, and the other two have a 25% market share each. The Herfindahl index of this industry is _____. a. 3,750 b. 1,000 c. 10,000 d. 5,000 e. 2,500 Mane Attraction, one of the firms with a 25% market share in the wig manufacturing industry, leaves the market. This would cause the Herfindahl index for the industry to _____. a. remain the same b. fall c. rise The largest possible value of the Herfindahl index is 10,000 because: a. an index of 10,000 corresponds to 100 firms with a 1% market share each b. an index of 10,000 corresponds to a monopoly firm with 100% market share c. an industry with an index higher than 10,000 is automatically regulated by the Justice Departmentarrow_forwardWhat is the Chicago School’s response to the S-C-P story? What is meant by “in the Chicago view, size and scope of the firm are determined by its efficiency”arrow_forward
- can you show the answers through a graph with two heterogeneous firms.arrow_forwardIndustry A consists of four firms, each of which has an equal share of the market. Compute the Herfindahl-Hirschman index for the industry. Industry B consists of 10 firms, each of which has an equal share of the market. Compare the Herfindahl–Hirschman Indexes for the two industries. Now suppose that there are 100 firms in the industry, each with equal shares. What is the Herfindahl-Hirschman index for this industry? State the general relationship between the competitiveness of an industry and its Herfindahl-Hirschman indexarrow_forward1. Exercise 16.2 An industry is composed of Firm 1, which controls 50 percent of the market, Firm 2 with 30 percent of the market, and Firm 3 with 10 percent of the market. About 20 firms of approximately equal size divide the remaining 10 percent of the market. What is the Herfindahl-Hirschman Index for the industry? (Hint: Assume the 20 firms that make up 10 percent of the market constitute one firm.)What will the Herfindahl-Hirschman Index be if Firm 2 and Firm 3 merge? (Hint: Assume that the combined market share after the merger is 40 percent) Based on the HHI scores, will the government consider the merger of Firm 2 with Firm 3 to be procompetitive or anticompetitive? Anticompetitive Procompetitiarrow_forward
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