Question 1

If the Herfindahl-Hirschman index (HHI) among the firms in the long distance telecommunications market were equal to 1755, when would the Federal Trade Commission probably challenge a proposed merger between any two of the firms?

Accepted Answer

The FTC is likely to challenge a merger if the HHI is between 1500 and 2500 and the merger increases the HHI by more than 100 points, indicating a significant increase in market concentration.

Question 2

When is price fixing among competitors not a violation of the antitrust laws?

Accepted Answer

Price fixing among competitors is considered a per se violation of antitrust laws, meaning it is illegal regardless of its effect on market efficiency or pricing outcomes.

Question 3

If the Herfindahl-Hirschman Index (HHI) among the firms in the long distance telecommunications market is equal to 855, when would the Federal Trade Commission probably challenge a proposed merger between any two of the firms?

Accepted Answer

The answer of If the Herfindahl-Hirschman Index (HHI) among the...

Question 4

A market in which the Herfindahl-Hirschman Index is 1,000 is regarded by the Federal Trade Commission as

Accepted Answer

The answer of A market in which the Herfindahl-Hirschman Index...

Question 5

As the Federal Trade Commission currently interprets the Herfindahl-Hirschman index (HHI), an industry is considered to be highly concentrated if the HHI value is above

Accepted Answer

The Federal Trade Commission considers an industry to be highly concentrated if the Herfindahl-Hirschman Index (HHI) is above 2,500.

Question 6

Under current guidelines, the Federal Trade Commission will likely challenge

Accepted Answer

The FTC is likely to challenge a merger if the HHI is 2500 or higher and the merger increases the HHI by more than 200 points, as this indicates a significant increase in market concentration.

Question 7

Suppose that two soft drink manufacturers, Fizzy Pop and Spritzy Soda, agree to charge the same prices for their soft drinks. This practice is

Accepted Answer

Price-fixing agreements between competitors, like the one described, are considered per se illegal under antitrust laws, such as the Sherman Act in the United States, regardless of the market concentration or cost justifications.

Question 8

Which of the following is illegal under the Sherman Act? I. A competitor agrees with another competitor on the price at which the product will be sold.
II) A manufacturer refuses to supply a retailer who does not accept the manufacturer's guidance on the price.

Accepted Answer

The Sherman Act prohibits agreements between competitors to fix prices, making I illegal. However, II is not necessarily illegal under the Sherman Act, as manufacturers can set conditions for their retailers, though it may raise issues under other antitrust laws.

Question 9

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 1575 and two of the competing banks have considered merging. Because the merger would raise the HHI by 215 points, the Federal Trade Commission would likely

Accepted Answer

The Federal Trade Commission (FTC) is likely to challenge the merger because an increase of 215 points in the HHI in a moderately concentrated market (HHI between 1500 and 2500) is significant and could potentially reduce competition.

Question 10

An industry is made up of 8 firms with the following percent market shares: 29, 20, 11, 10, 9, 8, 7, 6. What is the Herfindahl-Hirschman index in this industry?

Accepted Answer

The answer of An industry is made up of 8...

Question 11

Under Federal Trade Commission merger guidelines, an industry with a Herfindahl-Hirschman index (HHI) of 800 points is considered

Accepted Answer

An industry with an HHI of 800 points is considered competitive under the Federal Trade Commission merger guidelines, as it is below the threshold for moderate concentration (1,500 points).

Question 12

If McDonald's, Wendy's, and Burger King agree with each other not to sell hamburgers for less than $3.95 apiece, all three could be found guilty of

Accepted Answer

Price fixing is an agreement between competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold, and it is illegal under the Sherman Act.

Question 13

Under current guidelines, the Federal Trade Commission will likely review

Accepted Answer

The FTC is likely to review a merger if the HHI is between 1500 and 2500 and the merger increases the HHI by 100 points or more, as this indicates a potentially significant increase in market concentration.

Question 14

Suppose that two clothing manufacturers, Frederick's Fashions and Stephan's Styles, announce that they plan to merge. The Herfindahl-Hirschman index is currently 1,500. After the merger, the HHI will rise to 1,560. This market is

Accepted Answer

The market is moderately concentrated (HHI between 1,500 and 2,500), and the merger increases the HHI by less than 100 points, so the government will probably not challenge the merger.

Question 15

The local pizza delivery industry currently has a Herfindahl-Hirschman index (HHI) value of 999 and two of the competing pizza shops have considered merging. Because the merger would raise the HHI by 55 points, the Federal Trade Commission would likely

Accepted Answer

The Federal Trade Commission is less likely to challenge mergers in markets with an HHI below 1500, as they are considered unconcentrated. An increase of 55 points in an already low HHI of 999 is unlikely to raise significant competitive concerns.

Question 16

A merger will be challenged by the FTC in a market where the Herfindahl-Hirschman Index (HHI) is ________, and the merger would increase it to ________.

Accepted Answer

The FTC is likely to challenge mergers in highly concentrated markets, typically where the HHI is above 2,500. An increase of 200 points or more in such markets is significant, as in option A.

Question 17

As the Federal Trade Commission currently interprets the Herfindahl-Hirschman index (HHI), an industry is considered to be moderately concentrated if the HHI value is

Accepted Answer

The Federal Trade Commission considers an industry to be moderately concentrated if the HHI value is between 1,500 and 2,500.

Question 18

The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 1575 and two of the competing banks have considered merging. Because the merger would raise the HHI by 55 points, the Federal Trade Commission would likely

Accepted Answer

The HHI of 1575 indicates a moderately concentrated market. An increase of 55 points is unlikely to raise significant antitrust concerns, so the FTC would likely not challenge the merger.

Question 19

In the market for bottled water, Fresh Springs has a 30 percent share of the market, Swiss Springs has a 27 percent share, L'eau de France has a 13 percent share, and Mountain Water has a 10 percent share. The rest of the market consists of 20 firms with a 1 percent share of the market each. What is the value of the Herfindahl-Hirschman index?

Accepted Answer

The answer of In the market for bottled water, Fresh...

Question 20

An industry is made up of 8 firms with the following percent market shares: 29, 20, 11, 10, 9, 8, 7, 6. The firms with 8 and 7 percent market share are proposing to merge. What is the new Herfindahl-Hirschman index if the merger takes place?

Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by squaring the market share of each firm and then summing the results. Before the merger, the HHI is 29^2 + 20^2 + 11^2 + 10^2 + 9^2 + 8^2 + 7^2 + 6^2 = 1462. After the merger, the firm with 8% and 7% market shares will have a combined market share of 15%. The new HHI is 29^2 + 20^2 + 11^2 + 10^2 + 9^2 + 15^2 + 6^2 = 1804.

Quiz 15: Oligopoly