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532 CHAPTER 13 MARKET STRUCTURE AND COMPETITION

APPLICA TION 13.1
Market Structure Metrics for U.S.
Table 13.2 indicates that, by and large, the 4CR and
Manufacturing Industries the HHI are highly correlated: When one metric is large,
the other is as well. However, occasionally one sees
Table 13.2 shows the 4CR and HHI for a variety of U.S. some differences. For example, the electric lamp bulb
manufacturing industries for the year 2002. Some and parts manufacturing industry (whose principal
industries, such as beer brewing, breakfast cereals, product is lightbulbs) and the glass container industry
guided missile and space vehicle manufacturing, and have approximately the same 4CR, but the HHI for the
glass containers are highly concentrated; that is, their lightbulb industry is almost 200 points higher than the
4CR is large. Such industries are dominated by a few large HHI for the glass container industry. This is because, al-
firms. Beer brewing, breakfast cereals, and guided missile though the top four firms in the two industries account
and space vehicle manufacturing are good examples of for about the same share of industry sales, the lightbulb
differentiated product oligopolies; they consist of few industry consists of about 30 more smaller firms, and the
firms that produce similar but not identical products. The largest firm in that industry, GE Lighting, has a larger
glass container industry is, as noted above, a good exam- market share than the largest firm in the glass container
ple of a homogeneous product oligopoly; firms in the in- industry, Owens-Illinois. Thus, the structure of the light-
dustry produce largely similar products, and the three bulb industry is more asymmetric than that of the glass
largest firms account for over 80 percent of industry sales. container industry, a feature captured by the lightbulb
Other industries, such as curtain and drapery mills industry’s larger HHI. An advantage that the HHI has
and fabricated structural metal manufacturing, are over the 4CR as a measure of market structure is that it
more fragmented. These industries contain thousands is sensitive to such asymmetries among firms.
of U.S. firms producing nearly identical products, and When evaluating market structure metrics, it is im-
each provides a good approximation to a perfectly portant to recognize the geographic scope of an industry.
competitive industry. An industry such as cement manufacturing is primarily

TABLE 13.2 Four-firm Concentration Ratios and Herfindahl-Hirschman Indices for Selected U.S.
Manufacturing Firms, 2002

Total Number
Industry NAICS Code a of Companies 4CR HHI
Guided missiles and space vehicles 336414 13 96.0 na b
Cigarette manufacturing 312221 15 95.3 na
Beer breweries 312120 349 90.8 na
Electric lamp bulb and parts manufacturing 335110 57 88.5 2,757.6
Glass container manufacturing 327213 22 88.3 2,582.1
Primary aluminum manufacturing 331312 26 85.3 na
Breakfast cereal manufacturing 311230 45 78.4 2,521.3
Dog and cat food manufacturing 311111 176 64.2 1,845.5
Ice manufacturing 312113 425 42.9 763.1
Automatic vending machine manufacturing 333311 106 42.3 679.0
Cement manufacturing 327310 131 38.7 568.5
Curtain and drapery mills 314121 1,778 16.1 111.0
Fabricated structural metal manufacturing 332312 3,569 8.9 39.5
a NAICS, the North American Industry Classification System, is the system the U.S. Census Bureau
uses to classify industries.
b For industries with only a few firms, the Census Bureau does not publish the HHI because of
confidentiality concerns about disclosing data on the sales of individual companies.
Source: U.S. Census Bureau, Concentration Ratios: 2002, http://www.census.gov/epcd/www/
concentration.html (accessed March 10, 2010).