Question: Firms AFD TYU CHG and LAN are competitors within an
Firms AFD, TYU, CHG, and LAN are competitors within an industry. Their respective sales figures are $2.8 billion, $3.9 billion, $4.8 billion, and $2.1 billion. What is the Herfindahl Index (HI) for the industry? Is the industry considered highly concentrated, moderately concentrated, or not concentrated? Assuming that two more firms—QBC ($3.6 billion in sales) and RTY ($2.7 billion in sales)—are added to the industry figures, does the concentration level of the industry change? (Recompute HI to determine this.) If the three smallest firms (AFD, LAN, and RTY) merged, would the FTC be concerned? If so, why? (The HI is measured in units of %2. For example, 50% × 50% = 2,500%2 (or, in decimal form, 0.50 × 0.50 = 0.25). To make the conversion from decimal to percentage form mathematically, multiply the answer by 10,000; using the same example, this yields 0.50 × 0.50 × 10,000 = 2,500.)
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