Concentration Indices Research Paper Example | Topics and Well Written Essays - 1250 words

Concentration Indices - look for Paper ExampleThis index also shows the amount of competition present among the companies. Basic all in ally it takes market sh ars in account and calculates the sum of sh atomic number 18s of the market shares of all the companies present in that particular industry. So if there are N firms in an industry, the HHI is calculated asWhere s is the market share of the firm and n represents the play of the firms in the unharmed industry. If we see a decrease in HHI index we underside say that there is an profit in competition and there has been a loss of pricing power and its vice versa when there is an annex in the value. Other significant variants which typically revolve around the value of HHI are unconcentrated index which is indicated when H index is below 1000. HHI index between 1000 and 1800 indicates moderate concentration value and HHI index in a higher place 1800 indicates high concentrationConcentration Ration is defined as the percentage of market share which is possess by N largest firms in an industry. Usually the value of N is 4 but roughtimes some opposite larger number is taken. It is expressed as CRn, so a concentration ration for N largest firms in an industry is defined as followsWhere s defines the market share of the firm and n defines the number of the large firms if the value of the index is near zero and so we can say that the industry is passing competitive. However as general thumb rule followed by the industry analysts, that if CR value is humble then 40 then it implies that the industry has very stiff competition among the firms present in them and that no(prenominal) of them have a major chunk of market share in them. While on the other scenario where the value is close to 95 then we can say that one firm which is dominating the whole scenario. It can be called a monopolistic scenario.Lerner Index This index value considers the market positioning of the firm. It negotiation about the pricin g and measures the extent to which a given firms prices exceed marginal costs. Basically it is measured as the difference between the price and the marginal cost of the goods and it is defined asOne thing we motif to understand is that a high index value does not indicate the firms exercising market power. Prices whitethorn exceed marginal costs Gini CoefficientOne of the most famous indexes is the gini coefficient it is termed as a measure of variation of a distribution. It is defined as the ratio of areas on the Lorenz curve If the area between the line of entire equality and Lorenz curve is M, and the area under the Lorenz curve is N, then we can say that the Gini coefficient is M/(M+N). we can say that this index is used as health disparity or finance relate inequality metrics. It is termed between 0 and 1 where if it becomes 0 it is termed as perfect income or health equality. And 1 related to perfect inequality. A practical value usually lies in between them.Costs and Ben efits of the Indices There are benefits and advantages of some of the indices and some issues with others. If we look at HHI index we can say that it is a costly proposition. It considers all the firms in one single industry and if suppose the industry has 10000 firms under its belt then taking the considerations of 10000