There are 12 firms in an industry, 10 of them have a market share of 7% each, and 2 of them have a market share of 15% each. If 2 of the 7% market share firms agree to merge, calculate the pre- and post-merger Herfindahl-Hirschman Index, and evaluate the likelihood that the merger will be challenged on antitrust grounds. A) Pre-merger HHI = 940; Post-merger HHI = 1038; Unlikely. B) Pre-merger HHI = 940; Post-merger HHI = 1038; Possible. C) Pre-merger HHI = 833; Post-merger HHI = 972; Unlikely.
7 49 7 49 7 49 7 49 7 49 7 49 7 49 7 49 7 49 7 49 15 225 15 225 940 Pre 940 A OR B 940 is very concentrated, challenege likely with >50 change
B. Pre: HHI = 10*(7)^2 + 2*(15)^2 = 940 Post:HHI = 8*(7)^2 + 14^2 + 2*(15)^2 = 1038 Difference > 50, so likely to be challenged.
AH, fooled myself. Should see difference greater than 100, not 50. So since diff = 98, unlikely to be challenged.
Answer is A. If HHI > 1000 but < 1800, *and* the change between before and after >= 100 points, then it becomes suspect. here the change between before and after is less than 100.
There are 12 firms in an industry, 10 of them have a market share of 7% each, and 2 of them have a market share of 15% each. If 2 of the 7% market share firms agree to merge, calculate the pre- and post-merger Herfindahl-Hirschman Index, and evaluate the likelihood that the merger will be challenged on antitrust grounds. A) Pre-merger HHI = 940; Post-merger HHI = 1038; Unlikely. B) Pre-merger HHI = 940; Post-merger HHI = 1038; Possible. C) Pre-merger HHI = 833; Post-merger HHI = 972; Unlikely. pre = 10*7^2+2*15^2=490+450=940
Worked to fast A