In 1986, Pepsi announced its intention to buy 7-Up, and Coca-Cola proposed buying Dr Pepper. The table is- low shows the market shares held by the soft-drink firms in 1986. Assume that the remaining 15% of the mar- ket is composed of 15 firms, each with a market share of 1%.

Company market share (percent)

Coca-Cola 39

PepsiCo 28

Dr Pepper 7

7-Up. 6

1. Calculate the Herfindahl–Hirschman Index (HHI) for the industry as it was structured in 1986.

2. Calculate the postmerger HHI if only PepsiCo had bought 7-Up.

3. Calculate the postmerger HHI if only Coca-Cola had bought Dr Pepper.