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Calculation of Change in the HHI associated with a merger
Calculation of Change in the HHI associated with a merger.
Consider a market that has three firms with the following market shares:
| Firm A | 35% |
| Firm B | 41% |
| Firm C | 24% |
Suppose Firm A wants to acquire firm C so that the post-acquisition market would exhibit the following shares:
| A + C = 76% |
| B = 24% |
Calculate the pre-and post merger HHI and the change in the HHI resulting from the merger.
Expert Solution
The calculated values of the pre-and post merger HHI and the change in the HHI resulting from the merger are 3,482, 6,352 and 2,870.
Pre-Merger HHI
The pre-merger HHI is given by:
- = Sum of the squares of market share of firms A, B and C
- = (35 * 35) + (41 * 41) + (24 * 24)
- = 1,225 + 1,681 + 576
- = 3,482
Post-Merger HHI
The post-merger HHI is given by:
- = Sum of the squares of market share of firms (A+C) and B
- = (76 * 76) + (24 * 24)
- = 5,776 + 576
- = 6,352
Change in the HHI
The change in the HHI on account of the merger is given by:
- = Post-merger HHI - pre-merger HHI
- = 6,352 - 3,482
- = 2,870
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