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Calculating HHI index and C4 Ratio

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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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Solution Summary

Solution describes the steps to calculate HHI index and four-firm concentration ratio in the given case. It also checks whether given merger will be blocked by U.S. Department of Justice.

Solution Preview

Please refer attached file for better clarity of tables.

Pre Merger

Firm Sales % Share
1 100000 6.97%
2 500000 34.84%
3 400000 27.87%
4 300000 20.91%
5 60000 4.18%
6 75000 5.23%

Total 1435000

After merger
Firm Sales % Share
1 100000 6.97%
2 500000 34.84%
3 ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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