Market share in the Widget industry

-Using the market shares in the table above, if Widgotech buys Widgette the HHI will
A) stay the same.
B) rise by 1 point.
C) rise by 10 points.
D) rise by 18 points.

Question

Market share in the Widget industry
 
-Using the market shares in the table above, if Widgotech buys Widgette the HHI will
A) stay the same. 
B) rise by 1 point. 
C) rise by 10 points. 
D) rise by 18 points.

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by summing the squares of the market shares of all firms in the market. When Widgotech buys Widgette, their combined market share increases, and the HHI increases by the square of the new combined market share minus the sum of the squares of their individual market shares. This results in an increase of 18 points.

Market Share in the Widget Industry