Question: The bicycle industry consists of seven firms. Firms 1, 2, 3, 4 each has 10% market share, and firms 5,6,7 each has 20% market share.

The bicycle industry consists of seven firms. Firms 1, 2, 3, 4 each has 10% market share, and firms 5,6,7 each has 20% market share. Using the concentration measures, answer the following questions:

(i) Calculate 4-firm concentration ratio for this industry.

(ii) Calculate the Herfindahl-Hirschman index (HHI) for this industry.

(iii) Now, suppose that firms 1 and 2 merge, so that the new firm will have a market share of 20%.

1) Calculate the post merger I(x)

2) Calculate the change in the I(x) caused by the merger.

3) Will this merger be challenged in the U.S.? In Canada?

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