Carrot Computers and its competitors purchase touch screens for their handheld c
ID: 1124734 • Letter: C
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, 19 percent, 18 percent, 13 percent, 17 percent, 20 percent, and 13 percent. Instructions: Enter your answers as whole numbers. a. What is the Herfindahl index for the touch screen manufacturing industry? . b. 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? . c. If Carrot Computers horizontally merges with its competitor Blueberry Handhelds, by how much would the Herfindahl index change for the touch screen industry? .
Explanation / Answer
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, 19 percent, 18 percent, 13 percent, 17 percent, 20 percent, and 13 percent. Instructions:
a. What is the Herfindahl index for the touch screen manufacturing industry?
It is the sum of squares of market share by each firm. Find the HHI as
19^2 + 18^2 + 13^2 + 17^2 + 20^2 + 13^2 = 1712
Hence HHI for the touch screen manufacturing industry is 1712
b. 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? .
Two smallest touch screen makers have market share of 13%,
New HHI = 19^2 + 18^2 + 26^2 + 17^2 + 20^2 = 2050
Since HHI is increased by 338, this merger will be challenged. Transactions that increase the HHI by more than 200 are presumed to increase market power and so the government is 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?
There is no change in the market share so there is no increase in the HHI.