here are seven firms in the automobile industry. The market shares of the firms are 34 percent, 21 percent, 17 percent, 9 percent, 8 percent, 6 percent and 5 percent. Assume that the two (2) smallest companies (in terms of market share) in the automobile industry seek to merge in an effort to realize economies of scale and effectively compete with the larger companies in the industry. If so, then most likely

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ahmadfarriz6839 ahmadfarriz6839

08-05-2021
Business

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here are seven firms in the automobile industry. The market shares of the firms are 34 percent, 21 percent, 17 percent, 9 percent, 8 percent, 6 percent and 5 percent. Assume that the two (2) smallest companies (in terms of market share) in the automobile industry seek to merge in an effort to realize economies of scale and effectively compete with the larger companies in the industry. If so, then most likely

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codiepienagoya codiepienagoya · Answer 1 · 2021-05-10T11:28:13+02:00

Answer:

The answer is "Option 4".

Explanation:

The Herfindahl-Hirschman Index formula:

[tex]HHI=s_{12} + s_{22} + s_{32} + s_{42} +........ + s_{n2}[/tex]

here sn is the firm n's share of the market proportion represented the society in general number instead of a decimal

Index Herfindahl-Hirschman:

[tex]= (34)^2 + (21)^2 + (17)^2 + 92 + 82 + 62 + 52\\\\= 1156 + 441 + 289 + 81 + 64 + 36 + 25\\\\= 2092[/tex]

Index Herfindahl-Hirschman(Result of the merger, firms with profit margins of 6% and 5% provided market shares of respectively).

[tex]= (34)^2 + (21)^2 + (17)^2 + 92 + 82 + 112\\\\= 1156 + 441 + 289 + 81 + 64 + 36 + 121\\\\= 2188[/tex]

The market with just an HHI of less than 1,500 is called a competitive industry, one on an HHI of 1,500 to 2,500 is called a moderately competitive store, and one on an HHI of 2,500 or higher is considered a highly potent store by us Justice department.

All businesses operate in a moderately crowded market, as well as a merger such as this reduces competition (increases chances of monopoly). Also as result, the Justice Dept may examine its merger but will most likely deny this because the Herfindahl-Hirschman index has risen.