In Industry 1, Firm A, B, C, D and E each has 20 percent of the...
In Industry 1, Firm A, B, C, D and E each has 20 percent of the market. In Industry 2, Firm A has 75 percent of the market, Firm B has 2 percent, Firm C has 2 percent, and Firm D and 20 other firms all have 1 percent each. Which of these two industries do you consider likely to be more competitive, and why?
*step by step please*
Homework Answers
To measure the competitiveness, we need to calculate the HHI for every industry.
In industry 1, the HHI for every firm will be the same. So the total HHI = 5* 20*20 = 2000
In industry 2, the HHI for firm A = 75*75 = 5625
HHI for firm B and C each = 2*2 = 4
HHI for firm D = 20*20 = 400
HHI for firm E = 1*1 = 1
Total HHI for industry B = 5625+4+4+400+1 = 6034.
So industry 1 is more competitive as its HHI is lesser than industry 2’s HHI.
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