Sub: Economics Topic: Micro Economics
Question:
The importance of the HHI in an oligopoly framework.
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Describe why HHI indices might come up in any discussion on two oligopolistic firms merging in
a market. Explain.
Solution:
Describe why HHI indices might come up in any discussion on two oligopolistic firms merging in
a market. Explain.
Already we have explained that HHI is the square of the percentage of market share of each
firm summed over the largest 50 firms in the market. And, we know that the oligopolistic firms
are relatively large in the market. If the two oligopolistic markets are coming under collusion its
market share would too large compared to other firms market share. This would help the
merged firm to become a market leader in the industry.
** End of the Solution **
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