LOS f: Calculate and interpret the four-firm concentration ratio and the Herfindahl-Hirschman Index and discuss the limitations of concentration measures.
Which of the following best describes the relationship between the indicated type of market and the Herfindahl-Hirschman Index, respectively?
A) |
Monopolistic competition; 100. | |
B) |
Perfect competition; 1,800. | |
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The Herfindahl-Hirschman Index (HHI) has a theoretical range of near zero to 10,000. The HHI is very low in a highly competitive and increases to 10,000 (=100%2) for an industry with only one firm, e.g., a monopoly. An HHI between 1,000 and 1,800 is considered moderately competitive (monopolistic competition), while an HHI greater than 1,800 indicates a market that is not competitive (oligopoly). |