The Justice Department has been asked to review a merger request for a market with the following four firms.
$$\begin{array} { c r }
\text { Fim } & \text { Assets } \
\text { A } & \$ 10 \text { million } \
B & 20 \text { million } \
\text { C } & 100 \text { million } \
\text { D } & 30 \text { million }
\end{array}$$
If Firm C acquires Firm D, what is the HHI for the new market?
A) 100
B) 160
C) 6,796.875
D) 17,400.00

Question

The Justice Department has been asked to review a merger request for a market with the following four firms.
$$\begin{array} { c r } 
\text { Fim } & \text { Assets } \
\text { A } & \$ 10 \text { million } \
B & 20 \text { million } \
\text { C } & 100 \text { million } \
\text { D } & 30 \text { million }
\end{array}$$
If Firm C acquires Firm D, what is the HHI for the new market?
A) 100
B) 160
C) 6,796.875
D) 17,400.00

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each firm and summing the results. After the merger, Firm C's assets become $130 million. The total market assets are $160 million. The market shares are: A: 6.25%, B: 12.5%, C: 81.25%. The HHI is $6.25^2 + 12.5^2 + 81.25^2 = 6,796.875$.

The Justice Department Has Been Asked to Review a Merger