About economics

4. (15 points) Industrial organization economists often seek summary measures of con- centration to understand the level of competition in different markets. a. (5 points) While news reports often use 0 E 2:11 Sr the sum of the market shares of the top m rms to discuss competitiveness, economists tend to prefer the Herndahl index H E Zr sf. What advantage(s) does the Herndahl index offer over Cm? (Hint: Can you think of a situation where Cm would be the same for two different markets but H would be different?) h. (5 points) In classa we also dened the Lerner index, L E 2%. spigg. Why might the Lerner index be more attractive than either H or Cm, particularly when considering policy? (3. (5 points) In practice, the Lerner index is rarely used the Herndahl index is much more common. Why might this be? (Hint: What data do you need to calculate L versus H? Is that data easy to obtain?)