Level 1 – N-Firm Concentration Ratio and HHI from Economics section 7.2 Simpler Measures

Question

Hi- I hope everyone is doing well. i have a few questions that I am not sure i fully understand. Thank you in advance to whoever can help.I understand calculating before the merger 80%. but, after the merger. I don't understand why the last F-10% is not included in the answer belowBelow is the market share of firms in the FMCG industry. The market shares are before merger of A and B.A – 30%B – 20%C – 15%D – 15%E – 10%F – 10%What is the 4-firm concentration ratio before and after merger?A Before merger – 75%, after merger – 90%B Before merger – 80%, after merger – 90%.C Before merger – 85%, after merger – 95%.Explanation:B is Correct.N-Firm concentration ratio: It is the sum of the market shares of the largest N firms. It is almost zero for perfect competition and 100 for monopoly.The 4-firm concentration ratio before the merger is 30 + 20 + 15 + 15 = 80%. After the merger of A and B, the ratio will be 50 + 15 + 15 + 10 = 90%. This industry is highly concentrated. Section 7. LO.g.Same with this question. i got the first part of the question correct. but, not the second part.Below is the market share of firms in the FMCG industry. The market shares are before merger of A and B.A – 30%B – 20%C – 15%D – 15%E – 10%F – 10%What is the 4-firm HHI before and after merger? A Before merger – 0.170, after merger – 0.305.B Before, merger – 0.175, after merger – 0.350.C Before merger – 0.175, after merger – 0.305Your answer was Correct.Explanation:C is correct. Before merger 4-firm HHI = 0.30² + 0.20² + 0.15² + 0.15² = 0.175.After merger 4-firm HHI = 0.50² + 0.15² + 0.15² + 0.10² = 0.305Section 7.

fmccray · Answer

Thank you so much Zee. I appreciate your help in answering my question. You Rock!!!

Zee Tan · Answer

Firms before merger:A – 30%B – 20%C – 15%D – 15%E – 10%F – 10%So the firms used in the 4-firm concentration ratio are A, B, C and D (4 top firms) = 30 + 20 + 15 + 15 = 80%.HHI also uses the same 4 top firms.After the merger, the firms will look like this:NewCo – 30% + 20% = 50%C – 15%D – 15%E – 10%F – 10%So the firms used in the 4-firm concentration ratio and HHI are NewCo, C, D and E (4 top firms).Therefore 4-firm concentration ratio after merger = 50 + 15 + 15 + 10 = 90%.HHI therefore = 0.50² + 0.15² + 0.15² + 0.10² = 0.305