Suppose the top five firms in a market have market shares of 23%,12%,8%, 7% and 5% respectively. The remaining 45 firms in the market each have a market share of 1%. Would the FTC be likely to approve a merger between the top two firms in this market?

Question

Snowy

Business

4 August, 11:10

Suppose the top five firms in a market have market shares of 23%,12%,8%, 7% and 5% respectively. The remaining 45 firms in the market each have a market share of 1%. Would the FTC be likely to approve a merger between the top two firms in this market?

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Answers (1)

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Brylee · Answer 1

Answer: Yes, The FTC will approve the merger.

Explanation:

The Herfindahl-Hirschman Index (HHI) is the common measure of market concentration used to determine market competitiveness. The HHI is calculated by the squaring of the market share of every firm competing in the market and then adding the resulting numbers

HHI (before the merger)

= 23² + 12² + 8² + 7² + 5² + 45 * 1²

= 529 + 144 + 64 + 49 + 25 + 45

= 856

HHI (after the merger) = (23 + 12) ²

8² + 7² + 5² + 45 * 1² = 1408

Here, the market is less concentrated and the HHI is still below 1500 after the merger. Therefore, FTC will approve this merger. The answer is Yes.