Market Share: The HHI Is Expressed As: HHI s1 2 + s2 2 + s3 2 +..

Market Share
Market share represents the percentage of an industry or market’s total sales that is earned by
a particular firm over a specified time period. Market share is calculated by taking the firm’s
sales over the period then dividing it by the entire market over the same period. This calculation
is used to give a general idea of the size of a firm in relation to its market and also competitors.
Firm sales ÷ Entire market sales = Market share
The market share percentages of all competitors in the same market are calculated then
compared to determine the relative success of each business. The increases and decreases in
the market share can be a sign of the relative competitiveness of the firm’s products or services.
As the total market for a product or service grows, a firm that maintains its market share will
be growing its revenues at the same rate as the total market at much faster rate than its
competitors.
The increase in the market share can certainly allow the firm to achieve a greater scale with its
operations and at the same time improving its profitability. There are few ways on how the
firm can expand its market share either by lowering the prices, using advertising or even
introducing new or different products to the market.
Market share can be measured in terms of volume or value. Value market share is based on the
total share of a firm out of total segment sales whereas volume marker share refers to the actual
numbers of units that the firm sells out of total units sold in the market. A higher market
frequently means greater sales, lesser effort to sell more and at the same time will be a strong
barrier for other competitors to entry.
Besides that, as we already know, within a market, there exists a number of firms belong in the
same industry and this can be referred as concentration. Concentration refers to a degree to
which production in an industry is dominated by the large firms. Market concentration
nowadays is seen to act as an indicator of a superior economic performance. The Herfindahl-
Hirschman Index (HHI) is one of the few economic concepts used to measure the market
concentration of a certain industry to determine competitiveness among firms. It is calculated
by squaring the market share of each firm under the same industry and then summing the
resulting numbers.
The HHI is expressed as: HHI = s1^2 + s2^2 + s3^2 +...
It can be ranged from zero and up to 10,000. A high concentrated industry means a high degree
of concentration where few firms in the industry hold a large percentage of market share that
is close to monopolistic competition. Meanwhile, a low degree of concentration indicating that
the industry is closer to a perfect competition scenario where the firms are sharing the same
size of the market share and is competitive. Below is the calculation of the Herfindahl-
Hirschman Index (HHI) for food and beverage industry.
Firm Market Share in Percent Market Share

A 14.9% .149
B 39.8% .398
C 45.3% .453
HHI = (14.9)² + (39.8)² + (45.3)²
= 3,858
 A HHI index below 100 Indicates a highly competitive market

 A HHI index below 1,000 Indicates an unconcentrated market
 A HHI index between 1,000 to 1,800 Indicates moderate market concentration
 A HHI index above 1,800 Indicates high market concentration
Based on the calculation earlier, it shows that the HHI index is 3,858 indicating that the market
is a high market concentration where few firms in the industry hold such large percentage of
the market share. The higher the market concentration, the closer the market to a monopolistic
competition. Monopolistic competition where there are many firms and consumers just as in
the perfect competition, thus concentration measures are close to zero. Unlike the perfect
competition, in monopolistic competition, the firms usually produce products that are differ
from one another. As for Secret Recipe, it operates in a monopolistic competitive industry.
Market share represents the percentage of total sales of an industry or market earned by a
particular company over a specified period of time. The market share is calculated by taking
the sales of the company over the period and dividing it over the same period by the entire
market. This calculation is used to give a general idea of the size of a company and its
competitors in relation to its market.
The market share percentages of all competitors on the same market are then compared with
each company's relative success. The market share increases and decreases can be an
indication of the relative competitiveness of the company's products or services. As the overall
market for a product or service grows, a company that retains its market share will increase
its revenues much faster than its competitors at the same rate as the overall market.
The increase in market share can certainly enable the company to achieve a larger scale and,
at the same time, to improve its profitability. There are few ways in which the company can
expand its market share by either lowering prices, advertising or marketing new or different
products.
The share of the market can be measured by volume or value. The market share of the value is
based on the company’s total share of the total segment sales, while the volume marker share
refers to the actual number of units sold by the company out of the total units sold on the
market. A higher market often means more sales, less effort to sell more and at the same time
constitutes a strong barrier to entry for other competitors.
In addition, as we already know, there are a number of companies in the same industry within
a market and this can be referred to as concentration. The concentration refers to the extent to
which the large companies dominate the production in an industry. The concentration of the
market is now seen as an indicator of a higher economic performance. The Herfindahl-
Hirschman Index (HHI) is one of the few economic concepts used to measure a certain
industry's market concentration to determine company competitiveness. . It is calculated by
squaring the market share of each firm under the same industry and then summing the resulting
numbers.
It can vary from zero to 10,000. A highly concentrated industry means a high degree of
concentration in which few companies in the industry have a large market share close to
monopoly competition. In the meantime, a low degree of concentration indicates that the
industry is closer to a perfect competition scenario in which companies share the same size
and compete. Below is the calculation of the Herfindahl-Hirschman Index (HHI) for food and
beverage industry.

Market Share: The HHI Is Expressed As: HHI s1 2 + s2 2 + s3 2 +..

Uploaded by

Copyright:

Available Formats

Market Share: The HHI Is Expressed As: HHI s1 2 + s2 2 + s3 2 +..

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Market Share: The HHI Is Expressed As: HHI s1 2 + s2 2 + s3 2 +..

Uploaded by

Copyright:

Available Formats

Market Share

Firm Market Share in Percent Market Share

 A HHI index below 100 Indicates a highly competitive market

You might also like

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.