Herfindhal-Hirschman Index (HHI).

5IB004 Managerial Economics

Portfolio Task Two – Semester One 2015/16

You are required to write a report that addresses the following topic:

The tables below provide information about three industries. The firms in both industry A and industry B sell differentiated products, while the firms in industry C sell homogenous products.

Industry A   Industry B   Industry C
Firms Revenue in €millions   Firms Revenue in €millions   Firms Revenue in €millions
1 2800   1 8050   1 11780
2 2200   2 7350   2 11400
3 1800   3 6300   3 9880
4 1600   4 5600   4 2660
5 1400   5 3850   5 380
6 1400   6 1400   6 380
7 1200   7 1400   7 380
8 1200   8 350   8 380
9 1200   9 350   9 380
10 1000   10 350   10 380
Others 4200   Others 0   Others 0
Total 20000   Total 35000   Total 38000
Note:

For this industry the “Others” category consists of a further 7 firms each with revenues of €600million.

           

 

 

 

 

  1. Using the data in the tables calculate the following concentration indices for each industry: 3-firm and 7-firm concentration ratios and the Herfindhal-Hirschman Index (HHI).
  2. Use the concentration indices to compare the market structures of the three industries. Comment on the usefulness of the various measure of concentration in making the comparison.
  3. On the basis of the market structures you have identified and the nature of products being sold in each industry, discuss the types of competitive behaviour, e.g., pricing, advertising, product innovation, you would expect to see in each industry. This requires you to relate the theoretical expectations of competitive behaviour to the different industries.

 

Word limit – 1800 words maximum

Assessment Criteria

  • Accuracy of the calculation of the concentration indices
  • Effectiveness of the identification if the market structures
  • Thoroughness of the discussion of theoretical expectations of competitive behaviour
  • Structure and presentation of material, including the use of the Harvard Citation and Referencing system

 

 

 

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