Consider a market that has three firms with the following market shares:
Firm A 15 percent
Firm B 25 percent
Firm C 60 percent
Suppose Firm B wants to acquire Firm A so that the post-acquisition market would exhibit the following shares:
B + A = 40 percent
C = 60 percent
What is the change in the HHI resulting from the merger?
A) 750
B) 4,450
C) 5,200
D) No change

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. Before the merger, the HHI is calculated as follows: $15^2 + 25^2 + 60^2 = 225 + 625 + 3600 = 4450$. After the merger, the HHI is $40^2 + 60^2 = 1600 + 3600 = 5200$. The change in HHI is the difference between the post-merger HHI and the pre-merger HHI, which is $5200 - 4450 = 750$.

Consider a Market That Has Three Firms with the Following