The following three FIs dominate a local market and their total assets are given below. If Bank A acquires Bank B, what is the new Herfindahl Index?

Question

The following three FIs dominate a local market and their total assets are given below.  If Bank A acquires Bank B, what is the new Herfindahl Index?

Quizplus · Accepted Answer

- The initial HHI is calculated as follows:
HHI = 50^2 + 25^2 + 25^2 = 3,750
- If Bank A acquires Bank B, their total assets will be combined:
Total assets = $100 billion + $50 billion = $150 billion
- The new HHI is calculated as follows:
HHI = 75^2 + 25^2 = 5,050
- Therefore, the answer is D.

The Following Three FIs Dominate a Local Market and Their