Question

an industry consists of three firms with sales of $310,000, $725,000, and $405,000. a. calculate the herfindahl-hirschman index (hhi). instruction: enter your response rounded to the nearest integer. b. calculate the four-firm concentration ratio (c4). c. based on the ftc and doj horizontal merger guidelines described in the text, is the department of justice likely to attempt to block a horizontal merger between two firms with sales of $310,000 and $405,000? multiple choice yes no

Answer 1

To calculate the Herfindahl-Hirschman Index (HHI), square the market shares of each firm and sum them. The HHI for these firms is 8730. The four-firm concentration ratio (C4) for these firms is 88. Based on the FTC and DOJ guidelines, the Department of Justice is unlikely to block a merger between two firms with sales of $310,000 and $405,000.

Step-by-step explanation:

To calculate the Herfindahl-Hirschman Index (HHI), you need to square the market shares of each firm in the industry and sum them. The market shares are calculated by dividing the sales of each firm by the total sales in the industry. In this case, the HHI would be ((310,000/1,440,000)² + (725,000/1,440,000)² + (405,000/1,440,000)²) * 10000 = 8729.51. Rounding to the nearest integer, the HHI is 8730.

A four-firm concentration ratio (C4) is calculated by summing the market shares of the four largest firms in the industry. In this case, the C4 would be (310,000/1,440,000 + 725,000/1,440,000 + 405,000/1,440,000) * 100 = 88.43. Rounding to the nearest integer, the C4 is 88.

According to the FTC and DOJ horizontal merger guidelines, a merger between two firms with sales of $310,000 and $405,000 is unlikely to be blocked by the Department of Justice. This is because the resulting concentration ratio (C4) would only be 8.04, which is below the threshold of 50% that is generally considered to be a cause for concern.