Question

This is one question with part (a) and part (b) being the solution to the problem.

This problem is based upon two separate, distinct industries, each of which has ten companies.  Industry X has companies A, B, C, D, E, F, G, H, I, and J.  Industry Y has companies M, N, O, P, Q, R, S, T, U, and V.  These two industries are completely unrelated. There is no, absolutely no competition between any of the companies in Industry X with any of the companies in Industry Y.  This question is to examine the degree of market concentration, and hence the competitive nature, within each industry.

Industry X	A	B	C	D	E	F	G	H	I	J
Market Share	3.57	5	5	3.85	4.50	4.50	5.00	4.75	60.00	3.83
Industry Y	M	N	O	P	Q	R	S	T	U	V
Market Share	18.75	3.7	18.75	18.75	3.70	4.70	3.70	4.70	4.50	18.75

Part A:    Calculate the HHI in Industry X if Company I files to acquire Company B.  Then, using the United States Department of Justice guidelines, discuss whether or not the DOJ could move to block the acquisition?  

Part B:    Calculate the HHI in Industry Y if Company V files to merge with Company O. Then, using the United States Department of Justice guidelines, discuss whether or not the DOJ could move to block the merger?

Answer 1

Industry X	Market Share	s^2	Industry Y	Market Share	s^2
A	3.57	12.74	M	18.75	351.56
B	5	25.00	N	3.7	13.69
C	5	25.00	O	18.75	351.56
D	3.85	14.82	P	18.75	351.56
E	4.5	20.25	Q	3.7	13.69
F	4.5	20.25	R	4.7	22.09
G	5	25.00	S	3.7	13.69
H	4.75	22.56	T	4.7	22.09
I	60	3600.00	U	4.5	20.25
J	3.83	14.67	V	18.75	351.56
		3780.30			1511.8

Part A

Industry X	Market Share	s^2
A	3.57	12.74
C	5	25.00
D	3.85	14.82
E	4.5	20.25
F	4.5	20.25
G	5	25.00
H	4.75	22.56
I &B	65	4225.00
J	3.83	14.67
		4380.30

The HHI changes from 3780 to 4380

The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace. Since, now Industry X is highly concentrated, hence, it may raise some anti-trust issues, and DOJ will like to block it.

Part-B

Industry Y	Market Share	s^2
M	18.75	351.56
N	3.7	13.69
O&V	37.5	1406.3
P	18.75	351.56
Q	3.7	13.69
R	4.7	22.09
S	3.7	13.69
T	4.7	22.09
U	4.5	20.25
		2214.9

The HHI changes from 1511 to 2215

The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace. Since, now Industry Y is moderately concentrated, hence, it may not raise anti-trust issues, and DOJ will not like to block it.