15. Nationwide Bank has approached Hometown Bank with a proposal to merge. The following table lists the sales of the banks in the area. Use this information to calculate the four-firm concentration ratio and the Herfindahl-Hirschman index. Based on the FTC and DOJ Horizontal Merger Guidelines described in the text, do you think the Justice Department is likely to challenge the proposed merger?
Bank Name Sales (in millions)
Mega Bank $900
City Bank $850
Nationwide Bank $735
Atlantic Savings $555
Bulk Bank $345
Metropolitan Bank $340
American Bank $265
Hometown Bank $120
Urban Bank $90
Please see the attached Excel for the answer. The Justice ...
The solution does a great job of answering the question. The solution is brief and concise and very easy to follow along. All the steps are clearly shown and formulas are provided so that the student can answer similar questions in the future. It can be easily understood by anyone with a basic understanding of the topic. Overall, an excellent solution.
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?