NISM Certifications · NISM-Series-XV: Research Analyst · Industry Analysis
Four-firm sales in an industry are: Firm A Rs 400 crore, Firm B Rs 300 crore, Firm C Rs 200 crore, Firm D Rs 100 crore, and these four are the only firms. What is the Herfindahl-Hirschman Index (using market shares in percentage points) and how does it compare with the maximum possible value?
The HHI is 3,000, which is 30% of the maximum of 10,000. Shares are 40, 30, 20 and 10 percent; squaring and adding gives 1,600 plus 900 plus 400 plus 100. A pure monopoly would score 100 squared, or 10,000.
- A3,000, which is 30% of the maximum of 10,000Correct
- B1,000, which is 10% of the maximum of 10,000
- C10,000, since the four firms hold the whole market
- D300, which is 3% of the maximum of 10,000
Explanation
Total sales are Rs 1,000 crore, so shares are 40, 30, 20 and 10 percent. HHI = 1,600 + 900 + 400 + 100 = 3,000. The maximum, a monopoly, is 100 squared = 10,000, so 3,000 is 30% of it. Option 10,000 wrongly treats the four firms as a single firm; 1,000 results from summing shares multiplied by 10 incorrectly.
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