Question

Assume the top six firms comprising an industry have market shares of 10, 8, 8, 5, 5, and 4 percent. The remaining 20 firms each have market shares of 2 percent. The Herfindahl index for this industry is

Answer 1

Answer:

374

Explanation:

Data provided in the question:

Market shares of top six firms

10%, 8%, 8%, 5%, 5%, and 4%

Market shares of 20 firms = 2%

Now,

Herfindahl index = ∑[(Market share percentage of each of firms)² ]

or

Herfindahl index

= ∑[(Market share of each of top six firms)² ] + [20 × (market share of each remaining firm)²]

Herfindahl index = (10)² + (8)² + (8)² + (5)² + (5)² + (4)² + [20 × (2)²]

or

Herfindahl index = 100 + 64 + 64 + 25 + 25 + 16 + 80

or

Herfindahl index = 374

The herfindahl index for this industry is 374.