GIGAMIND

Folder:
115 CFA
File:
115.030.20.07 Economics - Reading 13 - 7. Identification of Market Structure

7. Identification of Market Structure

g. describe the use and limitations of concentration measures in identifying market structure;

h. identify the type of market structure within which a firm operates.

What is N-firm concentration ratio and what is it for?
N-firm concentration ratio is the percentage of market output generated by the N largest firms in the industry. The ratio is used as an indicator of the relative size of firms in relation to the industry as a whole.

What is the Herfindahl-Hirschman Index (HHI)?
- The Herfindahl-Hirschman index is the sum of the squared market shares of the top N largest firms in the industry.
- $$H = M_1^2 + M_2^2 + M_3^2 + ... + M_N^2$$

What are the advantages of the Herfindahl-Hirschman Index (HHI)?
The advantages of the Herfindahl index are that it reflects more firms in the industry and it gives greater weight to the companies with larger market shares.


Source:
  • CFA