Calculate HHI in the following industries:
One fir...

Question

Calculate HHI in the following industries:

One firm with 100% market share

Two firms with 50% market share

Four firms with market shares of 30%, 30%, 20%, and 20%

Ten firms with 10% market share

Accepted Answer

Alright so I've got a few different HHIs to calculate here. I'm gonna go ahead and calculate the first one with you, and then I want you to pause the video after each one, solve it yourself, and then continue the video and make sure that you got it correct. Okay. So let's start here with 1 firm with a 100 percent market share. So the HHI, remember we're gonna take the market share and square it, right? We square the market share to find the HHI. Since there's only 1 firm in this example, we're going to take their market share and square it. Right? If there were more firms, we would then take their market share and square it, right? But this one has all of the market share already so this is gonna be all we have to do. 1 firm with a 100% market share, this is the maximum that the HHI could be. 10,000 is the highest HHI, right? Because you couldn't have more than a 100% market share. Cool? Alright, why don't you guys pause the video real quick and try the second one, 2 firms with 50% market share. Alright, so I'm gonna guess that you guys paused the video and now we're restarting it here. So let's go ahead and solve it. So now we've got 2 firms with 50% market share. Well now our HHI, right, we're gonna take the market share of the first firm, 50% and square it. Then we're gonna add the market share of the 2nd firm, 50% and we square it. Right? So 50 squared, 50 times 50 is 2,500. 50 times 50 is 2,500. We add those together and we're going to get 5,000 is our HHI in this second example, right? So we're still highly concentrated, right? We're still above that threshold of 25100. That tells us we're highly concentrated and it makes sense, right? There's 2 firms here and they each have 50% market share. So you'd imagine they still have a lot of market power. Alright, go ahead and pause again and try this next example with 4 firms. I'm really trying to make sure you guys pause it here. Alright so let's try the next one. Four firms with market share of each each market share and square it, right? We're gonna have 30 squared plus 30 squared plus 20 squared plus 20 squared. Right? This is gonna give us the HHI. So we're gonna add each of them squared. So 30 squared is 900 +90220squared is 400 and again 400. Right? So if we add these together, 900 plus 900 plus 400, that's gonna give us an HHI of 2,600. Cool? So we're still above that threshold, right? That high concentration threshold and that's because there's still very few firms in the market, right? So you can imagine if some of these firms were to merge together, that HHI would skyrocket, right? So let's try this last one. 10 firms with 10% market share. Go ahead and pause and try to solve it and then let's continue. Alright, so let's go ahead and solve that problem now. So we're gonna have an HHI of 10 squared plus 10 squared plus 10 squared. Right? So this is gonna happen 10 times. 10 squared plus 10 squared plus 10 squared, right? 10 times. So that could be pretty tedious to write that out, right? But if you think about it, they each have the same market share of a 100 or of 10, right? So 10 squared is a 100, right? And that's gonna happen 10 times, right? So each one has a 100, so it's gonna be a 100 plus a 100 plus a100 plus a100, 10 times, right? So it's gonna be a 100 times 10 and we're gonna get an HHI here of 1,000, alright? So there we go. Finally, 1,000 we've reached some sort of situation where it's no longer highly concentrated, right? Thousand that's below our low threshold of low concentration, so there's a lot of firms here, 10 different firms all with not a huge market share, right? Just a 10% market share and we get a lower HHI. Cool. So that's how we solve these here. Let's go ahead and move on to the next video.

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Calculate HHI in the following industries:
One firm with 100% market share
Two firms with 50% market share
Four firms with market shares of 30%, 30%, 20%, and 20%
Ten firms with 10% market share

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