Calculate all HHI before and after the merge , show all the steps Carrier Share

Question

Calculate all HHI before and after the merge , show all the steps

Carrier Share (%) Verizon 34.5 AT&T; 32 Others 6.6 T-Mobile Sprint 15.9 a. Compute the Herfindahl-Hirschman Index (HHI) for the wireless industry before and after the merger of AT&T; and T-Mobile b. According the New Horizontal Merger Standards in Table 3.2, would the merger be considered safe or unsafe? Briefly explain Table 3.2 Horizontal Merger Standards (2010 now) Change in HHI 0-100 100-200 >200 Post-merger HHI over 2500 (highly concentrated) Safe Maybe unsafe Unsafe Post-merger HHI between 1500 and 2500 (moderately concentrated) Safe Maybe unsafe Maybe unsafe Post-merger HHI below 1500 Safe Safe Safe

Explanation / Answer

Question 1

(a)

Calculate the HHI before merger -

HHI = (Market share of Verizon)2 + (Market share of AT&T)2 + (Market share of Sprint)2 + (Market Share of T-Mobile)2 + (Market share of Others)2

HHI = (34.5)2 + (32)2 + (15.9)2 + (11)2 + (6.6)2

HHI = 1,190.25 + 1,024 + 252.81 + 121 + 43.56

HHI = 2,631.62

The HHI before merger is 2,631.62

Now, AT&T and T-Mobile has merged.

Calculate the HHI after merger -

HHI = (Market share of Verizon)2 + (Combined Market share of AT&T and T-Mobile)2 + (Market share of Sprint)2 + (Market share of Others)2

HHI = (34.5)2 + (43)2 + (15.9)2 + (6.6)2

HHI = 1,190.25 + 1,849 + 252.81+ 43.56

HHI = 3,335.62

The HHI after merger is 3,335.62

(b)

Increase in HHI = Post-merger HHI - Before merger HHI = 3,335.62 - 2,631.62 = 704

In the given case, post-merger HHI is over 2,500 and the increase in HHI is over 200.

According to the Table 3.2, if post-merger HHI is above 2,500 and increase in HHI is over 200 then merger would be considered unsafe.

So, this merger would be considered unsafe.

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