Herfindahl index and the FTC Suppose that in the market for sunglasses, market share is divided among six companies in the following manner: Market Share Firm 40% Sun Shades Cool Shades 35% UV Shield 15% 5% Shady Eyewear Tinted Windows 3% 2% Sun Fashion Based on the Herfindahl index of the market for sunglasses, the FTC would a merger between not challenge UV Shield and Tinted Windows. encourage challenge

Encourage Challenge

Explanation:

Herfindahl index is used to measure market concentration. The index is calculated by taking sum of square of each company market share. The index less than 1500 suggests competitive market place, between 1500 to 2500 moderately competitive market place and above 2500 is highly concentrated market place.

The Herfindahl Index for Sunglasses market is :

40^2 + 35^2 + 15^2 + 5^2 + 3^2 + 2^2

= 3088

The HHI index proposes that the market of sunglasses is highly concentrated. The FTC would not encourage Challenge a merger between UV shield and Tinted Windows.

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