Author Question: Suppose the industry for washing machines has only four firms. The market shares are: Firm A, 40 ... (Read 41 times)

ec501234 · **on:** Jun 29, 2018

Suppose the industry for washing machines has only four firms. The market shares are: Firm A, 40 percent; Firm B, 20 percent; Firm C 20, percent; and Firm D, 20 percent.

a) What is the Herfindahl-Hirschman Index (HHI)? b) If Firms C and D were to announce a merger, would the Department of Justice oppose the merger?

Question 2

Warranties in the used car market ________ the problem of private information thereby causing the price of good and bad used cars to ________.

A) reduce; be the same
B) reduce; differ
C) magnify; be the same
D) magnify; differ

Benayers · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

a) The HHI is 2,800.
b) Yes, the Department of Justice would oppose the merger. If the merger occurred, the new HHI would be 3,600. The merger would increase the HHI by 800 points. The Department of Justice's guidelines are to challenge a merger if the initial HHI exceeds 1,800 and the merger raises the HHI by more than 50 points. The merger considered in the problem easily falls under these guidelines.

Answer to Question 2

B