Market shares in the U.S. cigarette industry are as follows. Cigarette Company Market Share (Percent) Altria 50
Question:
Market shares in the U.S. cigarette industry are as follows.
| Cigarette Company | Market Share (Percent) |
| Altria | 50 |
| Reynolds | 35 |
| Vector | 5 |
| Republic | 4 |
| three smallest companies | each 2 |
| Total | 100 |
1. 1. Define the four-firm concentration ratio of an industry. Compute the four-firm concentration ratio for the cigarette industry. Show your computation.
2. Define the Herfindahl-Hirschman index (HHI). Compute the HHI for the cigarette industry. Show your computation.
3. The cigarette industry is often described as a “duopoly.” Explain how this description makes sense, even though there are more than two firms in the industry.
4. According to the U.S, government, what is the classification of the cigarette industry in terms of “concentration”? Explain your answer.
5. (a) Suppose that Altria and Reynolds explore a merger of the two companies. Is this merger likely to be approved by the U.S. government? Explain your answer using the HHI concept.
(b) Instead of Altria and Reynolds merging, suppose that the three smallest companies decide to merge. Is this merger likely to be approved by the U.S. government? Explain your answer using the HHI concept.
Expert Answer:
1 The fourfirm concentration ratio of an industry is the percentage of total industry sales accounted for by the four largest firms in the industry It measures the market power and dominance of these ... View the full answer
