PROBLEMS & EXERCISES


SOLUTIONS & DISCUSSION

UNIT THREE (FOR EXAM 3)

Unit Three: Assignment 1: Problem 3 from page 656

3. The pizza market is divided as follows:

Pizza Hut = 20.7%

Domino's = 17.0%

Little Caesars = 6.7%

Pizza Inn/Pantera's = 2.2%

Round Table = 2.0%

All others = 51.4%

a. How would you describe the market structure?

b. What is the approximate Herfindahl index?

c. What is the four-firm concentration ratio?

A. Although not as concentrated as the industry in the previous question, this is still oligopoly.

B. The CR4 = 46.6, which is enough to indicate oligopoly.

C. The Herfindahl index = 441 + 289 + 49 + 4 + 4 = 787 (entries were rounded).

Typically, the Herfindahl index will be at least 800 for an oligopoly, so this HI is minimal and implies, along with the CR4, a weakish oligopoly.

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