Question

The New York City hospital market (simplified with fictional values) has the following market share:

• NewYork-Presbyterian: 35%

• Mount Sinai: 22%

• NYU Langone: 17%

• Montefiore: 14%

• Long Island Jewish Medical Center: 12%

a) Calculate the HHI for this market and determine its level of concentration based on the DoJ/FTC Horizontal Merger Guidelines.

b) If NewYork-Presbyterian and NYU Langone were to merge, what would be the market’s new HHI, and would this raise significant concerns under the DoJ/FTC guidelines?

c) Explain why the FTC might be concerned about this sort of merger.

Answer 1

A.

HHI = 35^2 + 22^2 + 17^2 + 14^2 + 12^2

HHI = 2338

As per the given guidelines, if HHI is between 1500 to 2500 points, then market is moderately concentrated. In the given scenario, market has HHI of 2338 that is within the range of 1500 to 2500, so the market has moderate level of concentration.

B.

In a new scenario:

HHI = 52^2 + 22^2 + 14^2 + 12^2

HHI = 3528

Increase in concentration level after merger = 3528 - 2338 = 1190

Here, the increase in concentration level is 1190 that is significantly higher than the prescribed maximum level of 200 points. So, the merger raises the concerns as per the guidelines.

C.

FTC will be concerned about this merger, because:

A. It will raise the market power of the merged entity.

B. It will bring anti-competitive practices by the merged entity

C. It will raise the concerns over the free and fair competition