21-151 If Bank A acquires Bank B,what is the new Herfindahl Index?

Question

Quizplus · Accepted Answer

To calculate the new Herfindahl Index, we need to first determine the market shares of Bank A and Bank B before the acquisition.

Let's assume Bank A has a market share of 30% and Bank B has a market share of 20%. The pre-merger HI would then be:

HI= (0.3^2 + 0.2^2)*100= 13%

After the acquisition, Bank A would have a total market share of 50%. The new HI would be:

HI=(0.5^2)*100=25%

Therefore, the new Herfindahl Index would be 5,050. Option D is the correct answer.

21-151 If Bank a Acquires Bank B,what Is the New