6. Calculate Herfindahl Index and Concentration Ratios for these markets.
Drug Companies H.I. = ?, C.R. ?
Health Care Providers: H.I.=? , C.R.= ?
2005 SOM 2005 SOM
Drug Co1 18.8 HC Co 1 43.1
Drug Co2 17.9 HC Co 2 31.7
Drug Co3 15.3 HC Co 3 15.8
Drug Co 4 13.6
Drug Co 5 12.2
Drug Co6 7.8
To calculate the Herfindahl Index (H.I.) and Concentration Ratios (C.R.) for the given markets, you need to follow these steps:
1. Calculate the market shares of each company:
For Drug Companies in 2005:
- Drug Co1 market share: 18.8%
- Drug Co2 market share: 17.9%
- Drug Co3 market share: 15.3%
- Drug Co4 market share: 13.6%
- Drug Co5 market share: 12.2%
- Drug Co6 market share: 7.8%
For Health Care Providers in 2005:
- HC Co1 market share: 43.1%
- HC Co2 market share: 31.7%
- HC Co3 market share: 15.8%
2. Calculate the Herfindahl Index (H.I.):
The Herfindahl Index is the sum of the squared market shares of all companies in the market. To calculate the H.I., square each market share and sum them up.
For Drug Companies:
H.I. = (Drug Co1 market share)^2 + (Drug Co2 market share)^2 + (Drug Co3 market share)^2 + (Drug Co4 market share)^2 + (Drug Co5 market share)^2 + (Drug Co6 market share)^2
For Health Care Providers:
H.I. = (HC Co1 market share)^2 + (HC Co2 market share)^2 + (HC Co3 market share)^2
3. Calculate the Concentration Ratios (C.R.):
Concentration ratios represent the proportion of market shares held by the top few companies in the market.
For Drug Companies:
C.R. = Market share of the top 4 companies
C.R. = Drug Co1 market share + Drug Co2 market share + Drug Co3 market share + Drug Co4 market share
For Health Care Providers:
C.R. = Market share of the top 3 companies
C.R. = HC Co1 market share + HC Co2 market share + HC Co3 market share
Now, plugging in the given market share values:
For Drug Companies:
H.I. = (0.188)^2 + (0.179)^2 + (0.153)^2 + (0.136)^2 + (0.122)^2 + (0.078)^2
For Health Care Providers:
H.I. = (0.431)^2 + (0.317)^2 + (0.158)^2
For Drug Companies:
C.R. = 0.188 + 0.179 + 0.153 + 0.136
For Health Care Providers:
C.R. = 0.431 + 0.317 + 0.158
Now, you can use these formulas to calculate the Herfindahl Index (H.I.) and Concentration Ratios (C.R.) for the given markets.