Consider two industries, each comprising ten firms. In industryA, the largest firm has a market share of 49 percent. The nextthree firms have market shares of 7 percent each, and the remainingsix firms have equal shares of 5 percent each. In industry B, thetop four firms share the bulk of the market with 19 percent apiece.The next largest firm accounts for 14 percent, and the smallestfive firms equally split the remaining 10 percent of theindustry.

a. Compute the four-firm concentration ratio and HI for eachindustry. Compare these measures across the two industries. Whichindustry do you think truly exhibits a more competitive structure?Which measure do you think gives a better indication of this?Explain.

b. Now let the three second largest firms in industry A mergetheir operations while holding onto their combined 21 percentmarket share. Recalculate the HI for industry A.