An industry is made up of 8 firms with the following percent market shares: 29, 20, 11, 10, 9, 8, 7, 6. The firms with 8 and 7 percent market share are proposing to merge. What is the new Herfindahl-Hirschman index if the merger takes place?

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Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each firm and then summing the results. Before the merger, the HHI is 29^2 + 20^2 + 11^2 + 10^2 + 9^2 + 8^2 + 7^2 + 6^2 = 1462. After the merger, the firm with 8% and 7% market shares will have a combined market share of 15%. The new HHI is 29^2 + 20^2 + 11^2 + 10^2 + 9^2 + 15^2 + 6^2 = 1804.

An Industry Is Made Up of 8 Firms with the Following