Activity 2

3. The HHI is calculated by taking the market share of each firm in the industry, squaring, and summing the result. HHI =1( MS ) 2 +2( MS ) 2 +3( MS ) 2 + ⋯ 4( MS ) 2 (keep in mind, the 1, 2, 3, 4 are simply the number of organizations. These are not multipliers.) Consider the following hypothetical SNF industry example: SNF One market share = 25% SNF Two market share = 20% SNF Three market share = 18% SNF Four market share = 12 % SNF Five market share = 11% SNF Six market share = 9% SNF Seven market share = 5%  4.  Respond to the following questions specific to the HHI: Calculate the HHI using the formula:  HHI =1( MS ) 2 +2( MS ) 2 +3( MS ) 2 + ⋯ 4( MS ) 2  Show your work. What is the score? HHI = ∑ni=1 (MS)^2 + (MS)^2 + (MS)^2 + (MS)^2 + (MS)^2 + (MS)^2 HHI = (0.25)^2 + (0.20)^2 + (0.18)^2 + (0.12)^2 + (0.11)^2 + (0.09)^2 + (0.05)^2 HHI = 0.0625 + 0.04 + 0.0324 + 0.0144 + 0.0121 + 0.0081 + 0.0025 HHI = 0.172 (moderately) Based on the HHI, how concentrated is the market? Explain. The US government multiples the number 10,000 which changes the range from 0 (perfect competition). So, using the US government guidelines, our results are interpreted as follows:  Less than 1500 = competitive market (unconcentrated market)  Between 1500-2500 = moderately concentrated market  Higher than 2500 = highly concentrated market and negative market behaviors If we look at our six home health care agencies, the 0.172 score would be multiplied by 10,000 giving us a score of 1,720. This equates to a moderately concentrated market. 5.    Now, for comparison purposes, let’s calculate the FFCR.

Remember, we calculate FFCR by simply adding the market shares of the four largest firms (or organizations) in a market. Show your work. What is the score? FFCR = ∑ni=1 (Firm1) + (Firm2) + (Firm3) + (Firm4) FFCR = (0.25) + (0.20) + (0.18) + (0.12) FFCR = 0.75 or 75% Based on the FFCR, how concentrated is the market? Explain. The results are interpreted as follows:  FFCR less than 40% is considered unconcentrated  FFCR greater than 90% are highly concentrated Based on our calculations, the market is moderately concentrated at 75%. 6.    Based on the HHI and FFCR, as a healthcare leader, do you find the market attractive? Please explain why or why not connecting with course concepts. As a healthcare leader, I would find this moderately concentrated market attractive if there is room for innovation, improved efficiency, or quality enhancements without facing intense competition that could worsen profits. As for FFCR, I would find the moderately concentrated market an opportunity for strategic positioning and collaboration rather than facing monopolistic challenges. I find that the attractiveness of a moderately concentrated market, such as an oligopoly, lies in the barriers hindering new entrants, providing stability, and allowing established entities to focus on securing significant market share, controlled pricing, and potentially ensuring sustained profitability and dominance. References