Suppose there are 12 firms in an industry. The percentage of total sales is given in the following table:
Firm Percentage of total sales
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?© BrainMass Inc. brainmass.com October 25, 2018, 3:13 am ad1c9bdddf
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
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.
Herfindahl Index (HHI)
Suppose the market for toy trains is comprised of the following seven competitors with the indicated market shares:
Little Toot Toys 55% Trains R Us 3%
I Think I Can 25% Thomas Trains 3%
Engines, Inc. 8% The Fastest Trains 2%
Silver Streak 4%
a. What is the Herfindahl Index (HHI) for this industry?
b. If there were a merger between Engines, Inc. and Silver Streak, what is the new industry Herfindahl Index?
c. Would the Justice Department allow such a merger?
d. Why or why not?
e. If there were a merger between I Think I Can and Engines, Inc., what is the new industry Herfindahl Index?
f. Would the Justice Department allow such a merger?
g. Why or why not?
h. If there were a merger between Silver Streak, Trains R Us, Thomas Trains and The Fastest Trains, what is the new industry Herfindahl Index?
i. Would the Justice Department allow such a merger?
j. Why or why not?