Question

What would be evidence of serious competition between firms in an industry? Can you identify two highly competitive industries?

Short answer

Having a high HHI suggests there is a lot of competition.

Step-by-step solution

Step1. Introduction

The HHI is used to determine a company's market competitiveness.

Step2. Explanation

A measure known as the Herfindahl - Hirschman Index is used to assess corporate rivalry (HHI). The HHI method is used to calculate company market concentration. It is calculated by dividing each firm's market share in half.

$\mathrm{HHI}=\mathrm{S}{1}^{2\star }\mathrm{S}{2}^{2\star }\mathrm{S}{3}^{2\star }\dots \dots \dots$, where $\mathrm{S}$

denotes each firm's market share. It has a range of $0$to $10,000$.

If the HHI is $0$, the market is perfectly competitive; if the HHI is $10,000$, the market is extremely concentrated and monopoly exists. So, if HHI is between $2500-6000$, it suggests that the enterprises will be in fierce rivalry.

The computing and retail industries are two businesses with fierce competitiveness.

Step3. Examples

Electronics industry, agricultural industry can be named under serious competition.

It is so because agricultural products are more or less highly similar and substitutable and there exist many producers in the market. So goes with the electronics industry as well.