An industry is composed of Firm 1, which controls 70 percent of the market, Firm 2 with 15 percent of the market, and Firm 3 with 5 percent of the market. About 20 firms of approximately equal size divide the remaining 10 percent of the market. Calculate the Herfindahl-Hirschman Index before and after the merger of Firm 2 and Firm 3. (Assume that the combined market share after the merger is 20 percent) Would you view a merger of Firm 2 and Firm 3 as procompetitive or anticompetitive? Explain.
Please refer to the attachment as well.
Hirschman-Herfindahl Index (HHI). It is the sum of the squared market shares of the competitors. The index ranges from 10,000 for pure monopoly down to below 100 for perfect competition. The HHI before merge is computed by:
Hirschman-Herfindahl Index ...
Hirschman-Herfindahl Index (HHI) is examined.