Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 14, Problem 12P
(a)
To determine
Highest value HHI can take in the given scenario.
(b)
To determine
Lowest value HHI-Index can take in the given scenario.
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You are the manager in a market composed of 20 firms, each of which has a 5.00 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors.
a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market?
b. Suppose that any two of these firms merge. What is the postmerger HHI?
c. Based only on the information contained in this question and on the U.S. Department of Justice Horizontal Merger Guidelines described in this chapter, do you think the Justice Department would attempt to block a merger between any two of the firms?multiple choice
It may but will also consider other factors.
It likely will not.
It likely will.
Based only on the knowledge that the premerger market share of two firms proposing to merge was 30 percent each, an economist working for the Justice Department was able to determine that, if approved, the postmerger HHI would increase by 1,800. How was the economist able to draw this conclusion without knowledge of the other firms’ market shares? From this information, can you devise a general rule explaining how the Herfindahl-Hirschman index is affected when exactly two firms in the market merge?
The two major scooter companies in India, ABC and XYZ, are competing for a fixed market. If both manufacturers make major model changes in a year, then their percentage market share not change. Also, if they both do not make major model changes, their percentage market share remains constant. If ABC makes a major model change and XYZ does not, then ABC is able to take away a% of the market away from XYZ, and if XYZ makes a major model change ABC does not, XYZ is able to take away b% of the market away from ABC. Express this as a 2 x 2 game and solve for the optimal strategy for each of the companies.
Chapter 14 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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- Consider a market with four firms. Suppose the first firm has a 39% market share, the second firm has a 30% market share, the third firm has a 20% market share, and the fourth firm has a 11% market share. Using the Herfindahl-Hirschman Index (HHI), what is this market's level of concentration? Now suppose the third and fourth firms propose to merge. Were they to merge, then the market's HHI would increase to? Given the increase in the HHI that would be caused by the proposed merger, would the government likely allow such a merger to occur?arrow_forwardYou are the manager in a market composed of eight firms, each of which has a 12.5 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors. a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market. b. Suppose that any two of these firms merge. What is the postmerger HHI?arrow_forwardWhat is the, HHI, Herfindahl-Hirschman Index for an industry where six companies each have a market share of 15% and one company which has a market share of 10%?arrow_forward
- In the Tech industry, Tesla and Toyota are two famous brands and compete. Recently, both firms are competing to raise funds from the likes of Soft banks and Yes Bank. Tesla is in talks to raise $600 million and speed up its acquisition plans while Toyota plans to secure at least $200 million in a new funding round this year. Since both firms are going the same investors, if both approach the Soft banks then Toyota is guaranteed to raise $200 million while Tesla will receive $400 million. If both approach Yes Bank, then Toyota will definitely receive $600 million while Tesla will get $400 million. However, if Toyota approaches Yes Bank while Tesla pursues Soft bank, they are guaranteed investments worth $400 million and $800 million. On the other hand, if Toyota pursues Soft Bank while Tesla is interested in securing Yes bank’s funding, they each secure $600 million. a) Solve the Nash equilibrium for the above scenario as a simultaneous game. b) Now model the above scenario as a…arrow_forwardsuppose fiat recently entered into an agreement and plan of merger with case for $4.3 billion. prior to the merger, the market for four wheel drive tractors consisted of five firms. the market was highly concentrated, with herfindahl-hirschman index of 2,915. case's share of that market was 13 percent, while fiat comprised just 7 percent of the market. if approved, by how much would the post merger herfindahl-hirschman index increasearrow_forwardA market is dominated by five firms, each with an equal share of market sales. What is the Herfindahl-Hirschman Index for this market?arrow_forward
- You are the manager in a market composed of eight firms, each of which has a 12.5 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors. a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market. b. Suppose that any two of these firms merge. What is the postmerger HHI? c. Based only on the information contained in this question and on the Horizontal Merger Guidelines described in this chapter, do you think the Justice Department (or FTC) would attempt to block a merger between any two of the firms? Explainarrow_forwardYou are the manager in a market composed of eight firms, each of which has a 12.5 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors.Instruction: Enter your responses rounded to the nearest penny (two decimal places).a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market.b. Suppose that any two of these firms merge. What is the postmerger HHI?c. Based only on the information contained in this question and on the U.S. Department of Justice Horizontal Merger Guidelines described in this chapter, do you think the Justice Department would attempt to block a merger between any two of the firms?multiple choice It likely will not. It may, but will likely consider other factors as well. It likely will.arrow_forwardSuppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 2,765. Case’s share of that market was 22 percent, while Fiat comprised just 12 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase? Based only on this information, do you think the Justice Department would challenge the merger? Explain.arrow_forward
- The agencies generally consider markets in which the HHI is between 1,500 and 2,500 points to be moderately concentrated, and consider markets in which the HHI is in excess of 2,500 points to be highly concentrated. What would the Herfindahl-Hirschman Index (HHI) be in each of the following situations? 10 firms, each with 10 percent of the market 4 firms, each with 25 percent of the market 2 firms, each with 50 percent of the market 1 firm with a monopoly in the marketarrow_forwardSuppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 3,085. Case’s share of that market was 11 percent, while Fiat comprised just 7 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase?arrow_forward(Mergers and Public Policy) Calculate the Herfindahl-Hirschman Index (HHI) for each of the following industries.Which industry is the most concentrated?a. An industry with five firms that have the followingmarketshares: 50 percent, 30 percent, 10 percent,5 percent, and 5 percentb. An industry with five firms that have the followingmarketshares: 60 percent, 20 percent, 10 percent,5 percent, and 5 percentc. An industry with five firms, each of which hasa 20 percent market sharearrow_forward
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