The agencies generally consider markets in which the HHI is between 1,500 and 2,500 points to be moderately concentrated, and consider markets in which the HHI is in excess of 2,500 points to be highly concentrated. What would the Herfindahl-Hirschman Index (HHI) be in each of the following situations? 10 firms, each with 10 percent of the market 4 firms, each with 25 percent of the market 2 firms, each with 50 percent of the market 1 firm with a monopoly in the market
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The agencies generally consider markets in which the HHI is between 1,500 and 2,500 points to be moderately concentrated, and consider markets in which the HHI is in excess of 2,500 points to be highly concentrated.
- What would the Herfindahl-Hirschman Index (HHI) be in each of the following situations?
- 10 firms, each with 10 percent of the market
- 4 firms, each with 25 percent of the market
- 2 firms, each with 50 percent of the market
- 1 firm with a
monopoly in the market
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- A market is dominated by five firms, each with an equal share of market sales. What is the Herfindahl-Hirschman Index for this market?Suppose that there are 8 firms in a market, 3 firms produce 90% of the goods (each produces 30%) and 5 small firms produce the remaining 10% of the output (each produces 2%) (1) What is the value of the Herfindahl-Hirshman index in this market? Please show all your calculation. Points will be deducted if there is only a number without middle steps. Hint: it would be a number between 0 and 1. (2) A market is considered as "concentrated" if its HHI is greater than 0.18 and "highly concentrated" if HHI is greater than 0.25. Based on your calculation in the last question, what would you say about the market?Suppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 2,765. Case’s share of that market was 22 percent, while Fiat comprised just 12 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase? Based only on this information, do you think the Justice Department would challenge the merger? Explain.
- Calculate the Herfindahl-Hirschman Index (HHI) for each of the following markets. Market A has two firms, each with a market share of 50 percent. The HHI of these two firms is Market B has two firms, one with a market share of 90 percent and the other with a market share of 10 percent. The HHI of these two firms is Market C has firms, 5 with a market share of 16 percent each and 5 with a market share of 4 percent each. The HHI of these firms is Market D has firms, 2 with a market share of 34 percent each and 8 with a market share of 4 percent each. The HHI of these firms is Using your results, arrange the markets from most competitive to least competitive. A. Market B, Market A, Market D, Market C B. Market C, Market D, Market A, Market B C. Market D, Market C, Market B, Market A D. Market C, Market B, Market A, Market D1. Exercise 16.2 An industry is composed of Firm 1, which controls 50 percent of the market, Firm 2 with 30 percent of the market, and Firm 3 with 10 percent of the market. About 20 firms of approximately equal size divide the remaining 10 percent of the market. What is the Herfindahl-Hirschman Index for the industry? (Hint: Assume the 20 firms that make up 10 percent of the market constitute one firm.)What will the Herfindahl-Hirschman Index be if Firm 2 and Firm 3 merge? (Hint: Assume that the combined market share after the merger is 40 percent) Based on the HHI scores, will the government consider the merger of Firm 2 with Firm 3 to be procompetitive or anticompetitive? Anticompetitive ProcompetitiSuppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 3,085. Case’s share of that market was 11 percent, while Fiat comprised just 7 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase?
- You are the manager in a market composed of 20 firms, each of which has a 5.00 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors. a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market? b. Suppose that any two of these firms merge. What is the postmerger HHI? c. Based only on the information contained in this question and on the U.S. Department of Justice Horizontal Merger Guidelines described in this chapter, do you think the Justice Department would attempt to block a merger between any two of the firms?multiple choice It may but will also consider other factors. It likely will not. It likely will.Suppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 2,650. Case's share of that market was 18 percent, while Fiat comprised just 9 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase? Based only on this information, is the Justice Department likely to challenge the merger according to the Horizontal Merger Guidelines? Yes O Possibly - but other factors will be considered O NoSuppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl- Hirschman index of 2,650. Case's share of that market was 18 percent, while Fiat comprised just 9 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase? Based only on this information, is the Justice Department likely to challenge the merger according to the Horizontal Merger Guidelines? Possibly - but other factors will be considered Yes Ο NO
- Suppose there are N=8 hospitals in the market, and each of them has an equal share of the market (1/8). What is the value of the Herfindahl-Hirschman Index in this hospital market? One of the hospitals gets a fancy new cardiac surgery facility, and takes market share from the other hospitals. Now its market share is 85%, and the other 7 hospitals split the remaining 15% of the market equally. What is the value of the HHI in this case? Are each of these markets competitive or concentrated?Suppose that the distribution of sales within an industry is as shown in the following table: Firm Share of Total Market Sales A 15 B 14 13 D 10 10 F 10 G 9 H 6 All others 13 Total 100% There are 13 "All others" in the industry in the above table, each of which has a share of sales equal to 1 percent. The value of the Herfindahl-Hirschman Index for this industry is 1. (Enter your response as a whole number.)Based only on the knowledge that the premerger market share of two firms proposing to merge was 30 percent each, an economist working for the Justice Department was able to determine that, if approved, the postmerger HHI would increase by 1,800. How was the economist able to draw this conclusion without knowledge of the other firms’ market shares? From this information, can you devise a general rule explaining how the Herfindahl-Hirschman index is affected when exactly two firms in the market merge?