Herfindahl-Hirschman Index: A Case Study

Strategic behavior is a concept arising in oligopolistic market structures. Strategic behavior in firms occurs because of the mutual interdependence that exists among the firms in the market. As the companies depend on each other, they need to strategize on how to beat their rivals to survive in the market. The strategic behaviors companies can embark on include enacting pricing decisions or product differentiation measures that will help them beat the competition from the other few firms (Collins, 2009). Mutual interdependence also occurs in oligopolistic market structures. In this concept, one company's deeds such as the setting of prices for its products has a noticeable effect on its competitors. The firms cannot operate independently

It also tracks the changes in the depth of concentration of firms upon entering into mergers (McAfee & Lewis, 2009, p.5). The larger the index, the more concentrated the market, and the smaller the ratio, the lesser concentrated the market. The index also helps to recognize the intensity of the competitive environment that subsists within a market or industry. An extremely concentrated market implies that there is little or no competition in the market (McAfee & Lewis, 2009, p.8).

8. Calculation of the Herfindahl-Hirschman Index To calculate the HHI, one squares each value of the percentage of the shares of the market values of all the firms in the market (McAfee & Lewis, 2009). The consequential square values are then summed up. According to the U.S. Department of Justice-Federal Trade Commission 2010 Horizontal Merger Guidelines, when the HHI is below 1500 points, the market is considered to be unconcentrated. An HHI of between 1500 and 2500 translates to the market being fairly concentrated. The market is said to be extremely concentrated when the index is above 2500 points (McAfee & Lewis, 2009, p.6).

9. How the Government uses HHI in Analyzing Proposed

In the merger agreement, AT & T agreed to advance T-Mobile a huge break-up fee of $ 3 billion in cash, a wireless spectrum, and a roaming agreement of an extra $3 billion if the deal were to survive past the antitrust laws testing (Stewart, 2013). The government analyzed the impact of the merger in various states. In New York, the merger between the two firms would create an HHI of 3,335 points with an increase of 951. In Chicago, the resultant HHI would be 3,189 points with an increase of 1,114 points (Stewart,