Question

1. Suppose you have 150 firms and their total revenues. Explain how to derive the top 4, 8, and 12 HHI. Suppose the 2nd and 5th firms propose a merger. What would trigger a Federal trade Commission review?

Answer 1

HHI is the summation of the square of market share

To calculate market share, we will add the total revenues of all the 150 firms as Market revenue.
Market share for each firm = Revenue for the firm/ Market revenue

Highest revenue generating firms will be having the highest market share. Calculate the market share for the top 4, 8 and 12 firms and the HHI.

As per FTC, The antitrust laws prohibit conduct by a single firm that unreasonably restrains competition by creating or maintaining monopoly power. Monopoly does not mean a single firm, but a firm with significant and durable power and that could be around 50 percent of the sales in a geographic area. If the combined market share of the 2nd and 5th firm can create a concentration in market power (i.e. be around 50% of the market share), it will trigger a Federal trade Commission review.