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Calculating HHI Index

Suppose there are 12 firms in an industry. The percentage of total sales is given in the following table:

Firm Percentage of total sales
1 16
2 14
3 12
4 12
5 10
6 8
7 6
8 6
9 5
10 4
11 4
12 3

Calculate the HHI for this industry.

If firms 6 and 7 decide to merge, would this merger be challenged by the FTC? Why or why not?

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Solution Preview

Please refer attached file for better clarity of tables.

HHI Index is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers.

Firm Percentage of total sales, s s^2
1 16 256
2 14 196
3 12 144
4 12 144
5 10 100
6 ...

Solution Summary

Solution describes the methodology to calculate HHI index for a given industry. It also calculates HHI index in case two of the firms merge and checks whether merger should be challenged by FTC.

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