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Problem 14

How do we measure a Herfindahl-Hirshman Index? Wh…

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Problem 13

How do we measure a four-firm concentration ratio? What does a high measure mean about the extent of competition?

Answer

Antitrust laws are the laws and regulations that are imposed by government or authorities to
ensure the increased competitiveness in the market. It also helps observe and control mergers
and acquisition taking place between big or key firms.
The four-firm concentration ratio helps know the market dominance of top firms in the industry by
adding up the market share of top four market share holding firms in the industry. When the value
of market share of top four firms is high then it means that the top firms are holding good control
over market and so the competitiveness in market is less and would be more monopolistic if
these firms collude behind the curtain.


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Video Transcript

let's talk about how to calculate the four firm ratio and what it means. So the four home ratios calculated by looking at that high at that firms who have the highest share off the market. So, for example, in this case, we have firms A, B, C, D, and they each respective free own 25 20 to 20 in 18% of the market. Um, so we're doing here is just adding up these numbers, so if we add them up, we get 15 85. So these four firms produce or own 85% off the market, and this is huge. Then you said in this market, 85% of the goods that are kind of sold and boy come from these four firms. So this number tells you basically how competitive or non competitive the market is with the numbers really high. It means that thes firms are, um, that there's not a lot of competition when the number is slow, then you have a lot of competition. For example, let's say that there's, ah, 100 firms who you know each one owns 1% of the market, right, and in this case for maybe and see would have a share of the market off one 11 and one, so overall that tough for firms would be responsible for 4% of the market. So in this case we can see that it's a very competitive market. The top four firms on Lee Ah produce 4% of this market.

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