Nationwide Bank has approached Hometown Bank with a proposal to merge. The follo
ID: 1094458 • Letter: N
Question
Nationwide Bank has approached Hometown Bank with a proposal to merge. The following table lists the sales of the banks in the area.
Bank Name
Sales
(in millions)
MegaBank
$1,100
City Bank
950
Nationwide Bank
845
Atlantic Savings
785
Bulk Bank
665
Metropolitan Bank
480
American Bank
310
Hometown Bank
260
Urban Bank
140
(a) Use the above information to calculate the four-firm concentration ratio and the Herfindahl-Hirschman index in the current market.
Instruction: Round your answers to 2 decimal places.
Four-firm concentration ratio: .
Herfindahl-Hirschman index: .
(b) Based on the FTC and DOJ Horizontal Merger Guidelines described in the text, do you think the Justice Department is likely to challenge the proposed merger?
Bank Name
Sales
(in millions)
MegaBank
$1,100
City Bank
950
Nationwide Bank
845
Atlantic Savings
785
Bulk Bank
665
Metropolitan Bank
480
American Bank
310
Hometown Bank
260
Urban Bank
140
Explanation / Answer
The four-firm concentration ratio is 0.66.
The premerger HHI is 1,403.13,
and the postmerger HHI is 1,546.56.
The change in the HHI caused by the merger is 143.43.
(b) Based on the FTC and DOJ Horizontal Merger Guidelines described in the text, do you think
the Justice Department is likely to challenge the proposed merger?
It may be challenged, but other factors will be considered.
The merger may be challenged, but as noted in the text, the agencies likely will rely more heavily on other factors
such as economies of scale and ease of entry
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.