Question

Given: LUXURY CAR MARKET - CANADA Porche Volvo 4% 3% Acura 8% Mercedes 18% Audi 18% Lincoln 4% Lexus 13% BMW 17% Jaguar 4% Infinity 5% Cadillac 6% Answer the questions below (No shortcuts): What is the 4-Firm Concentration Ratio? (3.33 marks) % What is the Herfindahl Index? (3.33 marks) What type of market is this most likely to be? (3.33 Marks) (Possible Choices: Monopoly, Oligopoly, Perfect Competition, Monopolistic Competition)

Answer 1

Ans:

1)

4- Firm Concentration Ratio = 66%

2)

Herfindahl Index (HI) = 1288

3)

Oligopoly

As the top four firms in the market account for more than 60% of total market sales, the market is most likely to be oligopoly

Explanation

1) The four firm concentration ratio is the market share of top four firms in the market.

4- Firm Concentration Ratio = Mercedes + Audi + BMW + Lexus

= 18% + 18% + 17% + 13%

= 66%

2)

The Herfindahl Index (HHI) is calculated by squaring the market share of each firm in the market and then summing the resulting numbers.

Herfindah Index (HI) = (18)^2 + (18)^2 + (17)^2 + (13)^2 +(8)^2 + (6)^2 +(5)^2 + (4)^2 + (4)^2 + (4)^2 + (3)^2

= 324 + 324 + 289 + 169 + 64 + 36 + 25 + 16 + 16 + 16 + 9

= 1288