Question

120 Sales Company (millions of dollars) A B 89 CT 531 452 269 125 25 H 89 155 J 69 K 85 - IO TIMO The table above shows sales of the firms in the pet food industry. The Herfindahl- Hirschman Index in the industry is OA) 1588. OB) 1443 OC) 1260. OD 1100

Answer 1

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration. It can range from 0 to 10,000 and is given by the formula:

HHI = s1^2 + s2^2 + s3^2 + .......+sn^2

i.e. by squaring the market share of each competing firm in the market.

For the above question, HHI is given as:

HHI = (120/2009)^2 + (89/2009)^2 + (531/2009)^2 + .....+ (85/2009)^2

= 1/(2009)^2 [ 14400 + 7921 + 281961 + 204304 + 72361 + 15625 + 625 + 7921 + 24025 + 4761 + 7225]

= 1588

(Ans. )(A) HHI = 1588