Consider a market that has three firms with the following market shares:
Firm A 25 percent
Firm B 55 percent
Firm C 20 percent
Suppose Firm A wants to acquire Firm C so that the post-acquisition market would exhibit the following shares:
A + C = 45 percent
B = 55 percent
What is the change in the HHI resulting from the merger?
A) 1,000
B) 4,050
C) 5,050
D) No change

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by summing the squares of the market shares of all firms in the market. Pre-merger, the HHI is 25^2 + 55^2 + 20^2 = 625 + 3025 + 400 = 4050. Post-merger, the HHI is 45^2 + 55^2 = 2025 + 3025 = 5050. The change in HHI is 5050 - 4050 = 1000.

Consider a Market That Has Three Firms with the Following