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115 Merger and the Herfindahl index Consider an industry .pdf

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11.4. The HP-Compaq merger. In 2001, HP acquired Compaq. The merger had an impact on two different markets: desktop PCs and servers. Pre-merger market shares in the desktop PC market were as follows: Dell, 13; Compaq, 12; HP , 8; IBM, 6; Gateway, 4. Pre-merger market shares in the servers market were as follows: IBM, 26; Compaq, 16; HP. 14; Dell, 730 (a) Determine the value of HHI in each market before the merger. (b) Assuming market shares of each firm remain constant, determine the value of HHI after the merger. (c) Considering the values determined above and the DoJ merger guidelines, was the Department of Justice right in allowing the merger to take place?.

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11.5. Merger and the Herfindahl index. Consider an industry with demand Q=ap where 3 identical firms that compete a la Cournot. Each firm's cost function is given by C=F+cq. Suppose two of the firms merge and that the merged firm's cost function is given by C=F+cq, where F<F<2F. (a) Determine each firm's market share before and after the merger (b) Suppose that a=10 and c=3. Determine the Herfindahl index after the merger takes place when (i) d=2 and (ii) d=1. Compare this to the post-merger Herfindahl index calculated based on pre-merger market shares. Why do these values differ?

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115 Merger and the Herfindahl index Consider an industry .pdf

  • 1. 11.5. Merger and the Herfindahl index. Consider an industry with demand Q=ap where 3 identical firms that compete a la Cournot. Each firm's cost function is given by C=F+cq. Suppose two of the firms merge and that the merged firm's cost function is given by C=F+cq, where F<F<2F. (a) Determine each firm's market share before and after the merger (b) Suppose that a=10 and c=3. Determine the Herfindahl index after the merger takes place when (i) d=2 and (ii) d=1. Compare this to the post-merger Herfindahl index calculated based on pre-merger market shares. Why do these values differ?