Direction: Type and submit the print out of your homework. I will not accept email submission.
1. Answer the following questions:
a. Suppose the banking market in Richmond area consists of five banks that each has 15 percent of the market and five more banks that each has 5 percent of the market. Calculate the measure of monopoly power.
b. Three of the banks that currently have 15 percent of the market would like to merge and form First Super Bank of Richmond. If the merger were allowed, calculate the new measure of monopoly power.
c. Should the merger be allowed? Explain why or why not. Use your results from parts (a) and (b) above.
2. The banking market in Athens, Ohio, currently has four banks with market shares of 60 percent, 20 percent, 15 percent and 5 percent. The two smallest banks have proposed merging. Under the standard merger guidelines of the Federal Reserve and the Justice Department, is the merger likely to be approved? Why or why not? Show your work.
3. In a market with six banks of equal size, two of the banks propose merging. Does the merger violate the Justice Department’s guidelines?