CFA 12.3
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Questions and Answers

The most likely limitation of the N-firm and Herfindahl-Hirschman concentration measures in assessing market power is that they:

  • are both backward looking.
  • are insensitive to mergers within the industry.
  • do not explicitly include the effects of potential competition. (correct)
  • Wrong Answer

    • Concentration measures are most likely to be used to:

  • analyze barriers to entry into an industry.
  • identify the market structure of an industry. (correct)
  • measure elasticity of demand facing an industry.
  • Wrong Answer

    • The most effective way to assess the impact of a potential merger on the market structure of an industry is to:

  • analyze barriers to entry.
  • calculate the Herfindahl-Hirschman Index. (correct)
  • Wrong Answer
  • calculate the n-firm concentration ratio.

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