The data in the table below is “borrowed and altered” from what appears in your

Question

The data in the table below is “borrowed and altered” from what appears in your textbook near page 238. It roughly describes market shares of firms selling cars in the U.S. market. Please answer the questions below fully and as clearly as possible.

GM

19%

Ford

17%

Toyota

15%

Chrysler

11%

Honda

10%

Nissan

9%

Hyuandai

6%

Kia

5%

Subaru

4%

Volkswagen

4%

Would you characterize the auto industry as described by this data as being competitive? Explain why or why not.   A good approach here is to think about what competitive means and produce real data on another industry to draw comparisons from.  

Would the government approve a merger between GM and Ford, fully explain why or why not.

GM

19%

Ford

17%

Toyota

15%

Chrysler

11%

Honda

10%

Nissan

9%

Hyuandai

6%

Kia

5%

Subaru

4%

Volkswagen

4%

Explanation / Answer

In order to compute the competitiveness of the industry, HHI index is used to calculate the market share.

HHI = s12 + s22 + s32 + ......+ s102.

where s1 to s10 are the market shares of the automobile firms given in the table respectively.

HHI = (192 + 172 + 152 + 112 + 102 + 92 + 62 + 52 + 42 + 42)

HHI = (361 + 289 + 225 + 121 + 100 + 81 + 36 + 25 + 16 + 16).

HHI = 1270

HHI value between 1000 and 1800 represents a moderately concentrated market.

For a competitive market, the shares of each firm in the industry is almost equal to each other.

For GM and ford the combined share after merger would be = 19% + 17% = 36%.

Then HHI = 362 = 1296. which is higher than the individual share of the entire industry before the merger, clearly depicting that after the merger the market concentration would rest in the hands of the merged firm and thus the government would not approve the merger.

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