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Calculate the four-firm ratio

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An industry consists of three firms with sales of $200,000, $500,000, $400,000.

a. Calculate the Herfindal-Hirschmann index (HHI)
b. Calculate the four-firm ratio. (C^4)
c. Based on the US Dept. of Justic Mergers Guidelines do you think the dept would block the merger between the firms with sales of $200,000 and $400,000. Explain your findings.

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Solution Preview

a. The HHI index is calculated by taking the sum of the squares of the market shares of all firms in the industry. So let's first calculate the market shares of the 3 firms. The total size of the market is 200 + 500 + 400 = 1,100 (in thousands). The market shares of the 3 firms are then:

Firm 1: (200/1100)*100 = 18.18%
Firm 2: (500/1100)*100 ...

Solution Summary

The HHI index is calculated.

$2.19
See Also This Related BrainMass Solution

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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