Suppose we have two markets, A and B, each consisting of seven firms. The market shares of the 5 largest firms (ordered by market share) are shown in the table below. True or false? (i) The CR3 and CR4 concentration ratios both point to the same market (either A or B) having more market power. (ii) The 6th largest firm in market B captures at most 8 percent of the market. (iii) The HHI of market B is at most 1,798 (in units of squared percent). (Hint: for positive x and y, (x+y)2=x2+y2+2xy≥x2+y2.) (iv) The HHI of market A is definitely larger than the HHI of market B.
Suppose we have two markets, A and B, each consisting of seven firms. The market shares of the 5 largest firms (ordered by market share) are shown in the table below. True or false? (i) The CR3 and CR4 concentration ratios both point to the same market (either A or B) having more market power. (ii) The 6th largest firm in market B captures at most 8 percent of the market. (iii) The HHI of market B is at most 1,798 (in units of squared percent). (Hint: for positive x and y, (x+y)2=x2+y2+2xy≥x2+y2.) (iv) The HHI of market A is definitely larger than the HHI of market B.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose we have two markets, A and B, each consisting of seven firms. The market shares of the 5 largest firms (ordered by market share) are shown in the table below.
True or false?
(i) The CR3 and CR4 concentration ratios both point to the same market (either A or B) having more market power.
(ii) The 6th largest firm in market B captures at most 8 percent of the market.
(iii) The HHI of market B is at most 1,798 (in units of squared percent). (Hint: for positive x and y, (x+y)2=x2+y2+2xy≥x2+y2.)
(iv) The HHI of market A is definitely larger than the HHI of market B.
Transcribed Image Text:Firm
Market share (%)
rank
Market Market
A
B
1
20
22
2
20
20
3
20
20
4
20
15
5
15
15
6
?
7
?
?
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