1. (5 points) In January 2007, XM enjoyed about 38 percent of satellite radio subscribers, and Sirius had the remaining 42 percent. Both firms were suffering losses, despite their dominance in the satellite radio market. In 2008, the Department of Justice decided not to challenge a merger, and these two firms united to become Sirius XM. (a) What is the 4-firm concentration ratio before the merger for the satellite radio industry? Please show your calculations (b) What is the Herfindahl-Hirschman index before the merger for the satellite radio industry? Please show your calculations. (c) What is the 4-firm concentration ratio after the merger for the satellite radio industry? Please show your calculations (d) What is the Herfindahl-Hirschman index after the merger for the satellite radio industry? Please show your calculations. (e) Explain why, even with your answers to (c) and (d), the government still approved the merger. 2. (5 points) (a) A Herfindahl index of 10,000 suggests what type of a market? Please explain. (b) A student figured out that the HHI for an industry was 15,000. What is the proper conclusion about this number for the HHI calculated by the student? Please explain. 3. (5 points) The widget industry is comprised of six firms of varying sizes. Firm 1 has 35 percent of the market. Firm 2 has 25 percent, and the remaining firms have 10 percent each. (a) What is the Herfindahl-Hirschman index for the widget industry? (b) What will be the change in the Herfindahl-Hirschman index if there is a merger between firms 5 and 6? Please show your calculations. 4. (5 points) Del Monte has a long and rich tradition in the American food processing industry. It is perhaps best knows for packaging canned fruits and vegetables. Part of its success has involved acquiring other brands of canned foods and vegetables. Suppose that Del Monte is continuing its business plan of expansion by acquisition and that the following table summarizes potential takeover target. Based only on the information given in the table, is a horizontal merger between Del Monte and one of the firms in the table likely to meet any opposition from the government? You may assume that Del Monte is currently already present in the markets for Canned tomatoes and Canned pineapple even before the merger. It is not necessary to calculate C4 or HHI or calculate changes in C4 and HHI, but you have to explain how C4 and HHI could change as a result of the merger, based on the information given in the table. You must give an explanation. Profit Dansby- as % of Rothschild Lerner Willig Company Product Line Sales CA HHI Index Index Index Unilever Dove-personal care 5.2 24.1% 874 0.11 0 94 0.01 TricorBraun Food-grade cans 6.8 32.7% 1,065 0.64 0 67 0.40 Goya Canned tomatoes 7.1 86.3% 3,297 0.74 0.32 0.66 Dole Canned pineapple 8.7 94.2% 5,457 0.76 0.14 3.72
