ASSIGNMENT

ON
HERFINDAHL-HIRSCHMAN INDEX
FOR
PASSENGER CAR SEGMENT IN INDIA.

Presented To:

Presented By:

Prof. M Mallikarjun

Shreeni Yeshodharan
Section: C
Roll No: 141344
Managerial Economics

Overview- Passenger Cars segment in India:

Pre-liberalization, the auto industry in India was dominated by Hindustan Motors and Premier.
Things started to change in 1980s with the Government adopting policies to promote the automobile
industry. The de-licensing of the industry in 1993 led to a rush of international auto-makers as they
fought to capture the last remaining un-tapped major market. The next couple of years saw an
unprecedented growth in the. Till today the industry has grown enormously, with a number of new
companies vying for a piece of the huge market.

Sales figures for Passenger Cars:

Source- http://www.team-bhp.com/forum/indian-car-scene/148656-february-2014-indian-car-sales-figures-analysis.html

Passenger Car Sales in Feb 2014

Volkswagen; 1.65 Nissan; 0.94 Skoda; 0.62 Fiat; 0.61
Ford;
3.19 1.93
Renault;
Tata;
5.32
Chevrolet;
2.63
Toyota;
Honda;
6.83 4.74
Mahindra; 8.7
Hyundai; 15.97

Maruti ; 46.86

Herfindahl-Hirschman Index (HHI):

The Herfindahl-Hirschman Index is a commonly accepted measure of market concentration. It is
calculated by squaring the market share of each firm competing in a market, and then summing the
resulting numbers. The HHI number can range from close to zero to 10,000. The HHI takes into
account the relative size distribution of the firms in a market. It approaches zero when a market is
occupied by a large number of firms of relatively equal size and reaches its maximum of 10,000
points when a market is controlled by a single firm. The HHI increases both as the number of firms in
the market decreases and as the disparity in size between those firms increases.
The HHI is expressed as:
HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where sn is the market share of the ith firm).
For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI
is 2,600 (302+ 302 + 202 + 202 = 2,600).
A HHI index below 0.01 (or 100) indicates a highly competitive index.
A HHI index below 0.15 (or 1,500) indicates an unconcentrated index.
A HHI index between 0.15 to 0.25 (or 1,500 to 2,500) indicates moderate concentration.
A HHI index above 0.25 (above 2,500) indicates high concentration.
Hence, in the above example, the market would be considered to be a high concentration market.

HHI Calculations for Passenger Cars segment in India:

Using the formula for HHI and taking the market share from the table, we haveHHI= 46.862 + 15.972 + 8.72 + 6.832 + 5.322 + 4.742 + 3.192 + 2.632 + 1.932 + 1.652 + 0.942 + 0.622 +
0.612 + 02 = 2649.19
Thus, the HHI is above 2,500, indicating a market having high concentration.

Market Structure:

Perfect competition - a market structure that has an unlimited number of producers.

Monopolistic competition - a type of imperfect competition such that many producers sell
products that are differentiated from one another (e.g. by branding or quality) and hence are not
perfect substitutes.

Oligopoly- a market is run by a small number of firms that together control the majority of
the market share.

Duopoly - a market run by two firms.

Monopoly- a market where there is only one provider of a product or service.

Thus, the market structure for the passenger car segment can be said to be oligopoly.

Sourceshttp://www.justice.gov/atr/public/guidelines/hhi.html
http://en.wikipedia.org/