Question

Carrot Computers and its competitors purchase touch screens for their handheld computers from several suppliers. The six makers of touch screens have market shares of, respectively, 21 percent, 16 percent, 13 percent, 17 percent, 21 percent, and 12 percent. Instructions: Enter your answers as whole numbers. a. What is the Herfindahl index for the touch screen manufacturing industry? 1740 . b. By how much would a proposed merger between the two smallest touch screen makers increase the Herfindahl index? 312 . Would the government be likely to challenge that proposed merger? . c. If Carrot Computers horizontally merges with its competitor Blueberry Handhelds, by how much would the Herfindahl index change for the touch screen industry? .

Answer 1

a) HHI = 21² + 16² + 13² + 17² + 21² + 12² = 441 + 256 + 169 + 289 + 441 + 144 = 1740

b) Two smallest firms merger means their market share = 13% + 12% = 25%

    HHI = 25² + 21² + 16² + 17² + 21² = 625 + 441 + 256 + 289 + 441 = 2052

    Increase in HHI = 2052 - 1740 = 312

Yes, the government would likely challenge the proposed merger because a HHI more than 1800 market is highly concentrated.

c) The would be no change in HHI for touch screen industry, because the market shares for the touch screen industry has not changed.