The top companies and their revenue data are:

Company	Revenue
Pfizer Inc.	$ 22.2 billion
AbbVie Inc.	$ 21.5 billion
Johnson & Johnson	$ 21.5 billion
Merck & Co. Inc.	$ 19.4 billion
Amgen Inc.	$ 18.3 billion
Bristol-Myers Squibb	$ 13.0 billion
Eli Lilly & Co.	$ 9.2 billion
Sanofi SA	$ 9.2 billion
GlaxoSmithKline PLC	$ 6.4 billion
Other smaller firms combined	$ 47.7 billion
Industry Total	$188.4 billion

1. What is the 4-firm concentration index for this industry?

Index =

1. Calculate an accurate estimate of the Herfindahl-Hirschman Index for this industry. (You should be able to establish an "upper bound" even though you don't know the individual market shares of the smallest firms; however, be careful - none of the "other smaller firms" are as large as GlaxoSmithKline in sales, so you shouldn't lump them together in your calculation! If you do, your HHI will be too high.)

HHI =

In the guidance given by the Department of Justice's Antitrust Division (DOJ) and the Federal Trade Commission (FTC) in their "Horizontal Merger Guidelines," would this industry be considered highly concentrated, moderately concentrated, or unconcentrated?

3. Thinking specifically of the pharmaceutical industry, it what respect do you think the industry may be less competitive than what the HHI implies? (Suggestion: consider product market definitions.)

1. Suppose that Johnson & Johnson announces it intends to merge with Merck. What would be the new industry HHI? Given the policies stated in the "Horizontal Merger Guidelines" as discussed in the text, would the merger most likely be challenged by the DOJ/FTC as anticompetitive?

5. Suppose you work for Johnson & Johnson, and your firm is preparing to buy out both Merck and Eli Lilly to compete more effectively with your biggest competitors. Top management expects the merger to be investigated if not challenged by the DOJ/FTC, and they've asked you to create a defense of the merger. What key areas will you want to look into to make the case that your acquisitions will be pro-competitive, not anticompetitive?

Answer rating: 100% (QA)

The Answer is in the image, click to view ... View the full answer