The image presents a scenario for calculating the Herfindahl-Hirschman Index (HHI) to evaluate a proposed merger's impact on market competition. It outlines the following:1. **Scenario Description**: An industry consists of 50 firms, each holding a 2 percent market share. The task is to assess whether a merger between two firms would be permissible according to the HHI criteria set by the Department of Justice and the Federal Trade Commission.2. **Question Prompts**: - First, determine the HHI before the proposed merger by entering an integer value. - Next, calculate the HHI with the proposed merger and enter the result as an integer. - A dropdown menu offers options to predict whether the Department of Justice and the Federal Trade Commission would challenge the merger. The options include: - Probably would not - Would - May - Would not3. **HHI Calculation**: - **Before the Merger**: Each firm has a 2% market share. The HHI is calculated by squaring the market share of each firm and summing these values: \[ HHI = 50 \times (2^2) = 200 \] - **With the Merger**: After the merger, the new entity would hold a 4% market share: \[ HHI = 49 \times (2^2) + (4^2) = 196 + 16 = 212 \]The text serves as an educational example of how to calculate HHI and consider regulatory implications for market mergers.

We will use the formula to calculate Herfindhal Hirschman Index (HHI)We have 50 firms in the market with 2% market size allotted to each of the firm. HHI = sum of square of market size*100 =(2%*100)^2+(2%*100)^2+...+ (2%*100)^2 =50*4 =200 a) Therefore HHI before the merger is =200 After the merger of two firms out of fifty firms, the following effect on HHI is seen =4^2+48*2^2 =16+192 =208 b) Therefore HHI after the merger is =208 When the HHI remains below 1500 it is assumed to be unconcentrated industry. c) Hence, the department of justice and federal trade commission would not challenge the proposed merger

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Suppose an industry has 50 firms, each with an equal 2 percent share of the market. According to the Herfindahl-Hirschman Index (HHI), if two firms propose to merge, will the Department of Justice and the Federal Trade Commission allow it? First, the HHI before the proposed merger isO (Enter your response as an integer value.) With the proposed merger, the HHI is (Enter your response as an integer value.) The Department of Justice and the Federal Trade Commission challenge the proposed merger. probably would not would may would not

Suppose an industry has 50 firms, each with an equal 2 percent share of the market. According to the Herfindahl-Hirschman Index (HHI), if two firms propose to merge, will the Department of Justice and the Federal Trade Commission allow it? First, the HHI before the proposed merger isO (Enter your response as an integer value.) With the proposed merger, the HHI is (Enter your response as an integer value.) The Department of Justice and the Federal Trade Commission challenge the proposed merger. probably would not would may would not

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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