Suppose there are 12 firms in an industry. The percentage of total sales is give
ID: 1180258 • Letter: S
Question
Suppose there are 12 firms in an industry. The percentage of total sales is given in the following table:
Firm
Percentage of total sales
1
16
2
14
3
12
4
12
5
10
6
8
7
6
8
6
9
5
10
4
11
4
12
3
A) (6 points) Calculate the HHI for this industry.
B) (6 points) If firms 6 and 7 decide to merge, would this merger be challenged by the FTC? Why or why not?
Firm
Percentage of total sales
1
16
2
14
3
12
4
12
5
10
6
8
7
6
8
6
9
5
10
4
11
4
12
3
Explanation / Answer
A) The HHI is 1042
You can use this applet: http://unclaw.com/chin/teaching/antitrust/herfindahl.htm
Or you can use the formula: http://en.wikipedia.org/wiki/Herfindahl_index
B)
Increases of over 0.0100 points generally provoke scrutiny.
If firm's 6 and 7 merger, their new percentage would be 14%. We plug this into our calculator and get: 1138 This would almost certainly be challenged by the FTC.
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