Calculation of Change in HHI Associated with a Merger Consider a market that has three firms with the following market shares:
Firm A 25 percent
Firm B 55 percent
Firm C 20 percent
Suppose Firm A wants to acquire Firm C so that the post-acquisition market would exhibit the following shares:
A + C = 45 percent
B = 55 percent
What is the change in the HHI resulting from the merger?

Question

Quizplus · Accepted Answer

The change in HHI is calculated by the formula: Change in HHI = 2 * (Market share of Firm A * Market share of Firm C). Before the merger, HHI = 25^2 + 55^2 + 20^2 = 625 + 3025 + 400 = 4050. After the merger, HHI = 45^2 + 55^2 = 2025 + 3025 = 5050. The change in HHI = 5050 - 4050 = 1000.