ESTIMATING THE SIZE DISTRIBUTION OF FIRMS USING GOVERNMENT SUMMARY STATISTICS

Using a maximum entropy technique, we estimate the market shares of ea ch firm in an industry using the available government summary statisti cs such as the four-firm concentration ratio (C4) and the Herfindahl-H irschmann Index (HHI). We show that our technique is very effective in estimating the distribution of market shares in 20 industries. Our re sults provide support for the recent practice of using HHI rather than C4 as the key explanatory variable in many market power studies, if o nly one measure is to be used.