Calculating Horizontal Mergers Using the HHI

Calculating Horizontal Mergers Using the HHI

To Merge or Not to Merge?

Open Ended

When 1 company buys another company, what is it called?

Open Ended

Name 2 reasons that companies choose to merge.

Multiple Choice

Which kind of merger can lead to a monopoly?

• vertical

• horizontal

• conglomerate

Multiple Choice

In a conglomerate merger, what kind of companies join together?

• companies that sell similar products

• companies that sell different steps in production

• companies that have little in common and are very diverse.

By having the different LEVELS of oil refining and gas production, EXXON has created a vertical merger. Remember, vertical means up and down. From the 1st step to the 2nd step to the 3rd step etc.

NOT 2 companies that sell the same product.

Companies that have different PARTS of a product.

Open Ended

In your own words, explain why Old Navy / Banana Republic /Gap is an example of a horizontal merger.

Problem:

• Calculate the HHI for this industry

• Now calculate the HHI if the 2 largest firms merged. How would regulators react? Explain.

• Reset. Now calculate the HHI if the 2 smallest firms merged. Again, how would regulators react? Explain

​Problem #2

• Calculate the HHI for this industry

• Now calculate the HHI if the 2 largest firms merged. How would regulators react? Explain.

• Reset. Now calculate the HHI if the 2 smallest firms merged. Again, how would regulators react? Explain