Suppose two industries each consist of five firms with the following market shares.
Industry A Industry B
Firm #1 50% Firm #1 25%
Firm #2 20% Firm #2 25%
Firm #3 10% Firm #3 20%
Firm #4 10% Firm #4 20%
Firm #5 10% Firm #5 10%
1. Derive the four-firm concentration ratios for both industries.
2. Compute HHI for both industries.
3. Which industry is more concentrated according to 4-firm concentration ratio?
4. Which industry is more concentrated according to HHI?
5. Which of these measures (HHI and four-firm concentration ratio) can be argued to be a better measure of industrial concentration. Discuss.