Question 3 (Market concentration): A market consists of 8 firms with market shar

Question

Question 3 (Market concentration): A market consists of 8 firms with market shares 20, 20, 10, 10, 10, 10, 10, 10 ompute thc 2. Suppose the biggest two firms proposc a merger so that, if approved, there would be after the merger. Wil the remain 7 firms on the market. Predict what HHI w level of concentration increase or decrcasc? 3. After calculating the change in HH arising from the merger, the Department of Justice informs the merging parties that it intends to block the merger. You have been hired by the mcrging parties to make an argument for why the DoJ's HHI calculations d

Explanation / Answer

1)

H-Index = 20^2 + 20^2 + 10^2 + 10^2 + 10^2+ 10^2 + 10^2 + 10^2

= 400 + 400 + 100 + 100 + 100+ 100 + 100 + 100

= 1400

2)

H-Index = 40^2 +10^2 + 10^2 + 10^2+ 10^2 + 10^2 + 10^2

= 1600 + 100 + 100 + 100 + 100 + 100 + 100

= 2200

Concentration level has increased post merger.

3)

Justice Department takes action against merger if H-index value is greater than 1700. but again department considers value between 1500 and 2500 as moderately concentrated. It does not harm consumer severely even in some situation even consumer will be well off. Merged firms will find their cost falling down, hence more competition shall be created in market. it may lead to overall fall in prices of goods in maket . Hence, consumer shall be benefitted.

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