An industry consists of six firms with sales of $2.1 billion, $5 billion, $0.7 billion, $8 billion, $9 billion and $4 billion.
a. Calculate the Herfindahl-Hirschman index (HHI).
b. Calculate the four-firm concentration ratio (C4).
c. Based on the U.S. Department of Justice's Merger Guidelines described in the text, do you think the Department of Justice would block a horizontal merger between the two firms with sales of $2.1 billion and $5 billion?
Explain, and support your explanation with calculations
An industry consists of six firms with sales of $2.1 billion, $5 billion, $0.7 billion, $8 billion, $9 billion and $4 billion.
a. Calculate the Herfindahl-Hirschman index (HHI).
b. Calculate the four-firm concentration ratio (C4).
c. Based on the U.S. Department of Justice's Merger Guidelines described in the text, do you think the Department of Justice would block a horizontal merger between the two firms with sales of $2.1 billion and $5 billion?
Explain, and support your explanation with calculations
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1. The soft drink beverage industry in the U.S. incorporates all the manufacturing of carbonated beverages, sweetened and unsweetened, fruit juices, bottled water, ready-to-drink coffee, and other non-alcoholic drinks. Letâs do a little industry analysis; the numbers here a generally reflective of market conditions in recent years, with minor adjustments, but this exercise should still be considered âhypotheticalâ (recent mergers and other market changes may also have had an impact on industry structure).
Suppose annual industry sales are $84 billion. In this industry there are three leading companies, a couple of smaller competitors, and a number of even smaller niche firms. The top five companies and their revenue data are:
| Company | Revenue |
| Coca-Cola Company | $ 35.7 billion |
| PepsiCo | $ 22.7 billion |
| Dr Pepper/Snapple Group | $ 14.5 billion |
| Cott Corporation | $ 3.4 billion |
| National Beverage | $ 2.5 billion |
| Others (in total) | $ 5.2 billion |
| Industry Total | $ 84.0 billion |
Calculate an accurate estimate of the Herfindahl-Hirschman Index for this industry. (You should be able to establish an âupper boundâ even though you donât know the individual market shares of the smallest firms, which wonât have much effect in any case.)
| HHI = |
