question archive Let us assume that in a market for PCs, Lenovo has a market share of 30%, Dell 25%, HP 20%, Toshiba 20%, and Samsung 5%
Let us assume that in a market for PCs, Lenovo has a market share of 30%, Dell 25%, HP 20%, Toshiba 20%, and Samsung 5%
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Let us assume that in a market for PCs, Lenovo has a market share of 30%, Dell 25%, HP 20%, Toshiba 20%, and Samsung 5%. Calculate the 4-firm concentration ratio and the Herfindahl-Hirschman Index for the market. Is this market an oligopoly or competitive according to each of these two measures?
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4-firm concentration ratio:
4-firm concentration = Lenovo + Dell + HP + Toshiba
4-firm concentration = 30% + 25% + 20% + 20%
4-firm concentration = 95%
Four firm ratio at 95% indicates the oligopolistic nature of the market.
Herfindahl-Hirschman Index (HHI):
| Title | Market share | Square of each market share |
|---|---|---|
| Lenovo | 30% | 900 |
| Dell | 25% | 625 |
| HP | 20% | 400 |
| Toshiba | 20% | 400 |
| Samsung | 5% | 25 |
| 2,350 |
An HHI value less than 1,500 means it is competitive, 1,500 to 2,500 is moderately competitive, greater than 2,500 is highly concentrated. So, the value of 2,350 means the market is moderately competitive or an oligopolistic market.
