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Herfindahl-Hirschman index (HHI)

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An industry is composed of Firm 1, which controls 70 percent of the market, Firm 2 with 15 percent of the market, and Firm 3 with 5 percent of the market. About 20 frims of approximately equal size divide the remaining 10 percent of the market. Calculate the Herfindahl-Hirschman Index before and after the merger of Firm 2 and Firm 3 (assume that the combined market share after the merger is 20 percent). Would you view a merger of Firm 2 with Firm 3 as procompetitive or anticompetitive? Explain.

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Herfindahl-Hirschman index (HHI) is calculated by squaring the market share of each firm competing in the market and then summing the ...

Solution Summary

Herfindahl-Hirschman index (HHI) is defined.

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