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Calculating HHI and Concentration Ratio

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An industry consists of three firms with sales of $300,000, $700,000, and $250,000.

a. Calculate the Herfindahl-Hirschman index (HHI).

b. Calculate the four-firm concentration ratio.

c. Do you think the Department of Justice would attempt to block a horizontal merger between the two firms with sales of $300,000 and $250,000? Explain.

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Solution Preview

An industry consists of three firms with sales of $300,000, $700,000, and $250,000.

a. Calculate the Herfindahl-Hirschman index (HHI).
Market share of firm1 =300000/(300000+700000+250000)=24%
Market share of firm2 =700000/(300000+700000+250000)= 56%
Market share of firm3 ...

Solution Summary

Solution describes the steps to calculate HHI index and concentration ratio in the given case.

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Economics of Merger

An industry consists of 6 firms, with sales of $100,000, $500,000, $400,000, $300,000, 60,000, and $75,000. Now, suppose the two smallest firms merge.

a. Calculate the four-firm concentration ratio (C4) before the merger. Show your work.
b. Calculate the four-firm concentration ratio (C4) after the merger. Show your work.
c. Calculate the Herfindahl-Hirschman index (HHI) before the merger. Show your work.
d. Calculate the Herfindahl-Hirschman index (HHI) after the merger. Show your work.
e. Do you think the U.S. Department of Justice would try to block the merger?

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