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In: Economics

Assume there are 10 equally sized hospitals in a market area. Three hospitals in this market area inform the Department of Justice (DOJ) that they wish to merge

Assume there are 10 equally sized hospitals in a market area. Three hospitals in this market area inform the Department of Justice (DOJ) that they wish to merge. According to the current DOJ merger guidelines discussed in class (merger causes HHI to exceed 0,25 threshold), will the DOJ challenge the merger?

Solutions

Expert Solution

Three hospitals in this market area inform the Department of Justice (DOJ) that they wish to merge.

Because there are 10 equally sized hospitals, each hospital will have 100/10 = 10% market share.

HHI = Sum of square of market share

=102 * 10

=1000

If three hospitals merge those three will have a combined share of (10+10+10) =30%

But all the other firms still have 10% itself

HHI = 302 + 7*102

= 1600

New HHI is 1600 and according to the threshold value which is 2500, the merger is not crossing the threshold value on the whole and therefore DOJ will not challenge the merger all in all.

Rahul Sunny answered 2 years ago
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