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30 March, 11:58

Suppose that three firms make up the entire tire manufacturing industry. One has a 50% market share, and the other two have a 25% market share each. The Herfindahl index of this industry is. A new firm, Tread Tough, enters the tire manufacturing industry and immediately captures a 15% share of the market. This would cause the Herfindahl index for the industry to. The largest possible value of the Herfindahl index is 10,000 because: An industry with an index higher than 10,000 is automatically regulated by the Justice Department An index of 10,000 corresponds to 100 firms with a 1% market share each An index of 10,000 corresponds to a monopoly firm with 100% market share

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  1. 30 March, 12:23
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    Answer: 2700

    Explanation:

    Given data

    The Herfindahl Index of the industry is

    HI = 50^2 + 25^2 + 25^2 = 3,750.

    when another firms joins the market, this would cause a decrease in the Herfindahl Index.

    new firm (tread tough) enters the market with a 15% of the share market this would affect the largest shareholder there by causing a reduction in his shares to 35%.

    the total HI would now be

    HI = 35^2 + 25^2 + 25^2 + 15^2 = 2700.

    The Herfindahl Index can never be more than 10,000, as this would represent a 100% market monopoly from a single company. In a perfect monopoly HI is 100^2 = 10,000.
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