If a firm with a 10 percent market share merges with a firm with a 15 percent market share,and the other firms have market shares of 40 percent,15 percent,10 percent,and 10 percent,respectively,the Herfindahl-Hirschman Index (HHI)will _____

Question

Quizplus · Accepted Answer

To calculate the HHI, we need to square the market share percentages and add them up. Before the merger, the HHI is:
(0.1^2 + 0.15^2 + 0.4^2 + 0.15^2 + 0.1^2 + 0.1^2) * 10000 = 2225

After the merger, the market share percentages become 25% and 40%, respectively. The new HHI is:
(0.25^2 + 0.4^2 + 0.15^2 + 0.10^2 + 0.10^2) * 10000 = 2525

The difference between the two HHIs is 300, so the correct answer is B.

If a Firm with a 10 Percent Market Share Merges