Question

Carrot Computers and its competitors purchase touch screens for their tablet computers from several suppliers. The six makers of touch screens have market shares of, respectively, 19 percent, 18 percent, 13 percent, 17 percent, 21 percent, and 12 percent. What is the Herfindahl index for the touch screen manufacturing industry? By how much would a proposed merger between the two smallest touch screen makers increase the Herfindahl index? Would the government be likely to challenge that proposed merger? 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

HHI = 19^2 + 18^2 + 13^2 + 17^2 + 21^2 + 12^2 = 1728

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If two smallest players with market share of 12% and 13% are merged, then:

New HHI = 19^2 + 18^2 + 17^2 + 21^2 + 25^2 = 2040

So,

increase in HHI = 2040-1728 = 312

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After the merger, the HHI is only 2040 that is less than 2500. It means that market is only moderately concentrated even after the merger. So, government will not challenge the merger.

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If carrot computer has market share of 19% and blue bird has market share of 18%, then after the merger:

HHI = 37^2 + 13^2 + 17^2 + 21^2 + 12^2 = 2412