Suppose an industry is composed of six firms. Four firms have sales of $100,000 each, and two firms have sales of $50,000 each.
a. Explain how concentration ratios are calculated. Determine the concentration ratios in the market.
b. Explain how the Herfindahl-Hirschmann index is constructed. Determine the Hefindahl-Hirschmann index for that industry.
c. Based on the FTC and DOJ Horizontal Merger guidelines, do you think that the FTC would attempt to block a horizontal merger between two firms with sales of $100,000 and $50,000? Explain.
d. Explain how the FTC decides on whether to challenge a proposed merger? What other aspects does the agency consider in addition to the HHI and market concentration ratios? Use the link below to prepare your answers.