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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.