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Economics: Herfindahl-Herschman Index (HHI)

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Please help answer the following problem.

Assume an industry is composed of the following eight firms.

Company Market Share
Firm A 30 percent
Firm B 25 percent
Firm C 15 percent
Firm D 10 percent
Firm E 7 percent
Firm F 6 percent
Firm G 4 percent
Firm H 3 percent

a. If Firms B and C propose a merge, would the Antitrust Division likely challenge the merger? Why or why not?
b. If firms G and H propose a merger, would the Antitrust Division likely challenge the merger? Why or why not?

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Solution Summary

This solution shows how to use the Herfindahl-Herschman Index (HHI) to predict whether or not the Antitrust Division will challenge a proposed merger. All calculations are given in full and illustrated with an Excel spreadsheet. The explanation is given in 167 words.

Solution Preview

The Antitrust Division uses the Herfindahl-Herschman Index (HHI) to measure the concentration of a market before and after a merger. The HHI is calculated by adding the squares of each firm's market share. The minimum value is 0 (indicating perfect ...

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