What is an illegal merger?
The Clayton Act 7 makes certain mergers and acquisitions illegal. Basically, one company cannot acquire another companys stock or assets (or otherwise combine with another entity) if the combination is reasonably likely to substantially lessen competition or tend to create a monopoly.
Is it true that a merger between two firms that are not already in the top four by size can affect both the four firm concentration ratio and the Herfindahl Hirshman Index?
Yes, for sure it would affect the herfindal. It is calculated by adding the market shares—that is, the percentage of total sales—of the four largest firms in the market.
At what HHI is the market considered highly competitive?
The U.S. Department of Justice considers a market with an HHI of less than 1,500 to be a competitive marketplace, an HHI of 1,500 to 2,500 to be a moderately concentrated marketplace, and an HHI of 2,500 or greater to be a highly concentrated marketplace.
Why is HHI a better measure of competitiveness over CR?
Herfindahl-Hirschman index of market concentration is expressed as the sum of squared market shares of all firms in an industry. It is believed that the Herfindahl-Hirschman Index is more precise measure because it takes into account all companies.
What is the 4 firm concentration ratio?
A four-firm concentration ratio is one way of measuring the extent of competition in a market. It is calculated by adding the market shares—that is, the percentage of total sales—of the four largest firms in the market.
How do you interpret the four-firm concentration ratio?
The four-firm concentration ratio is commonly used to indicate the degree to which an industry is oligopolistic and the extent of market control held by the four largest firms in the industry….High, Medium, and Low.
| Concentration Levels | |
|---|---|
| High | 80% to 100% |
| Medium | 50% to 80% |
| Low | 0% to 50% |
What is the meaning of four-firm concentration ratio of 60 percent?
Answer: A four-firm concentration ratio of 60 percent means the largest four firms in the industry account for 60 percent of sales; a four-firm concentration ratio of 90 percent means the largest four firms account for 90 percent of sales (just add the percentage of sales for the largest four firms).
What does a high concentration ratio indicate?
Introduction. Concentration ratio indicates the level of competition between firms comprised in an industry. It is the ratio of the size of the firms to the entire industry. A high concentration ratio closer to 100% indicates the existence of a monopoly in an industry or lack of competition to such firms.
What are two negative effects of high market concentration ratios?
Other disadvantages of this increase in Monopoly power include; an increase in the firm’s supernormal profits at the expense of the consumer. This could be used to finance predatory pricing and force rivals out of business; this will reduce competition even further.
What are the two measures of concentration?
Competition economists and competition authorities typically employ concentration ratios (CRn) and the Herfindahl-Hirschman Index (HHI) as measures of market concentration.
What is the eight firm concentration ratio for this industry?
An eight-firm concentration ratio over 90 (that is, 90 percent of industry output is produced by the eight largest firms) is a good indication of oligopoly and that these eight firms have significant market control….High, Medium, and Low.
| Concentration Levels | |
|---|---|
| Low | 0% to 50% |
What is one difference between the four firm concentration ratio and the Herfindahl index?
The Four-firm Concentration Ratio Measures The Degree Of Concentration Among All But Four Firms In An Industry, Whereas The Herfindahl Index Measures The Degree Of Concentration Among All Firms In An Industry.
Which industry has the highest 4 firm concentration ratio?
The “automobiles” category, for example, has a four-firm concentration ratio that suggests the industry is strongly dominated by four large firms (in fact, U.S. production is dominated by three: General Motors, Ford, and Chrysler).
When the four firm concentration ratio is less than 40 percent we can conclude that?
In more general terms, it is the market share of the four largest firms in an industry. From a market structure standpoint, if the four firm concentration ratio is greater than 60% the market is an oligopoly. If it is less than 40% it is monopolistic competition.
What concentration ratio is a monopoly?
A rule of thumb is that an oligopoly exists when the top five firms in the market account for more than 60% of total market sales. If the concentration ratio of one company is equal to 100%, this indicates that the industry is a monopoly.
How do you calculate the HHI index?
The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers. For example, for a market consisting of four firms with shares of 30, 30, 20, and 20 percent, the HHI is 2,600 (302 + 302 + 202 + 202 = 2,600).
What is the maximum value the HHI can take on?
The HHI reaches a maximum value of 10,000 when a monopoly exists in which one firm has 100 percent of the market, that is, the HHI = (100)2 = 10,000. In contrast, the HHI takes on a very small value, theoretically approaching zero, in a purely compet- itive market in which there are many firms with small market shares.
What is a shortcoming of the HHI measure?
What is a shortcoming of the HHI measure? Answer:One flaw with the HHI measure is that as N (the number of teams increases) the value of HHI decreases even if the league has not become more competitive. Thus, even a 50-50 revenue split may have little impact on the distribution of talent or competitive balance.
Why is the largest possible value of the Herfindahl index is 10000?
the largest possible value of the herfindahl index is 10,000 because: an index of 10,000 corresponds to 100 firms with a 1% market share each an industry with an index higher than 10,000 is automatically regulated by the justice department an index of 10,000 corresponds to a monopoly firm with 100% market share.
What is a highly concentrated market?
Definition: Market concentration is used when smaller firms account for large percentage of the total market. If the top firms keep on gaining market share, then we say that the industry has become highly concentrated.
What does HHI stand for income?
Household Income
What is the Herfindahl index of a monopoly quizlet?
The Herfindahl Index is another measure of industry concentration and it is the sum of the squared percentage of market shares of all firms in the industry. Generally speaking, the lower the Herfindahl, the lower the industry concentration. Firms produce the quantity where MR = MC just like in other industries.
What is the Herfindahl index of a monopoly?
The Herfindahl Index, also known as the Herfindahl-Hirschman Index (HHI), measures the market concentration of an industry’s 50 largest firms in order to determine if the industry is competitive or nearing monopoly.
What is the maximum value of the Herfindahl index quizlet?
What is the maximum value of the Herfindahl-Hirschman Index? the square of the percentage market share of each firm summed over the largest 50 firms or summed over all the firms if there are fewer than 50. 2,500.
What is the Herfindahl index for a pure monopolist?
The Herfindahl index for a pure monopolist is: 10,000.