The general rule for impact on HHI when two firms in market merge.
Explanation of Solution
Sales of firms are termed in industry as:
When firms are not merged, then HHI is calculated as:
When there is merger between two firms: HHI is calculated as follows:
Difference between above two:
Since,
Comparison of HHI when firms are merged and not merged:
Value of HHI increases by 1800.
For the purpose of generalization, if the two firms merge, the increase in HHI post-merger is given by:
Where,
Introduction:HHI is a measure to know concentration of market power in an industry. Higher the value of HHI, higher is the firm’s market power.
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Chapter 7 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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