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“Is professor melanie hildebrand. I m going to work another example from chapter 10. This this problem does not come directly from the textbook. There are some problems at least.
I think in the myeconlab study plan that is related to this so in this problem. I m going to show an example of calculating our hhi or the kerf and all hirshman index okay and this is another method similar to the four firm concentration ratio that we can use to determine how competitive a market actually is to calculate the hhi. It s simply the sum of the squares of the market shares for each of the firms in our market. So in this example.
There are 4 firms from 1..
Has 30 percent of the shares as does firm 2 firms. 3. And 4 each have 20 of the market shares. So we ll set up our equation.
The hhi is 30. Squared. Plus. 30.
Plus. 20. Squared. Plus.
20. Squared. So it would be 2600. Now.
We would typically say that markets..
Where the hhi is between 1000 and 1800 are moderately concentrated and anything with an h h. I and xs of 1800. We would say is very concentrated so not competitive right we only have four firms in this market. So hopefully common sense would tell you this is not a very competitive market ok.
But the hhi really takes into account the relative size of our firms and the distribution of firms in our market. And as the hhi and gets smaller as it approaches zero. Then the market would be adding more and more firms. That would be relatively similar size to one another ok.
If instead the hhi is increasing..
Then we know that the number of firms is probably decreasing and also the disparity in size between those firms is increasing so we d have some really big firms in the market. And some much much smaller firms. So this one does a really good job of showing those two different characteristics that we could have in an anti competitive practices. So not having a lot of firms and having disparity in size between the firm s so for example look what happens if firms.
Three and four were to merge and they suddenly had 40 of the market shares well if you calculate it out our hhi would increase okay by another 800 and so again we would see the competitiveness of this market. Would decrease further as we move from for firms to three and as the one barton firm was then much larger okay ” ..
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