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Problem 3

Some years ago, two intercity bus companies, Grey…

01:45
Problem 2

Is it true that the four-firm concentration ratio puts more emphasis on one or two very large firms, while the Herfindahl-Hirshman Index puts more emphasis on all the firms in the entire market? Explain briefly.

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Video Transcript

everyone. Today we're answering problem number two from chapter 11 of the textbook, which is essentially a true or false question. Is it true that the four firm concentration ratio puts more emphasis on one or two very large firms, while the H. H I or her friend all Hersman Index puts more emphasis on all the firms in the entire market? Extreme. Briefly explain briefly. So I'm just going to give you the answer right out front. It is not true where it's false. In other words, um, so basically, we just wanna explain what the H h I includes and then that'll really propel you to your rationale for why the statement is false. So the H H I includes the market shares of all firms in its calculation. That may make you think, All right, this must be true. But there's an important distinction that H h I calculation that you need to understand that will really be the key to getting this question correct. So it includes the shares of all firms in its calculation. But in our h h I calculation, this squaring of the market shares has the effect of making the impact of the largest firms relatively bigger Ben in the four firm or eight firm ratio. So but the swearing And that's fundamentally understanding, you know, h h i index and what at its core, it's getting down to it. But squaring of the market shares has the effect of making the impact of the largest firms relatively bigger than before. Eight from ratio. And remember, squaring of the largest firms means that those firms have more shares, so it's gonna be much bigger. Probably I'm gonna. Four firmer A from ratio. That's why it's been particular with the largest firms you should really mentioned on your option now going ineffective, making the impact of larger shares bigger. Then what? This kind of stated in the problem, which, if you recall it, states that the H H I index puts more emphasis on all the firms. Um, sorry, it states that ask, Is it true that the four from concentration ratio what's more emphasis on only 1 to 2 very large rooms? While the H I index puts more emphasis on all the firms, what the H E Sai index has the effect of making the impact of the largest terms bigger than the 48 Um, for Misha. So that is how you answer problem number two from Chapter 11 about monopoly antitrust policy. If you guys enjoyed my video explanation of this problem, he said the like blood. And next to it, I hope you all have a nice day and thank you for watching.

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