econ

Industry	Top Firms	CR4 (%)
Wholesalers and Supercenters	Walmart, Costco, Meijer, Target	93.6
Department Stores	Target, Macy's, Sears, Walmart	76.7
Cigarettes and Tobacco	Altria, Reynolds, Imperial, Vector	91.6

Industry	HHI
Wholesalers and Supercenters	5209.36
Department Stores	2031.09
Cigarettes and Tobacco	3565.26

Wholesalers and Supercenters	Mkt Share	Department Stores	Mkt Share		Cigarettes and Tobacco	Mkt Share
Walmart	69.80%	Neiman Marcus	3.00%		Altria Group	49.10%
Costco Wholesale	17.40%	Hudson's Bay	4.60%		Reynolds American	32.90%
Meijer Inc.	3.50%	JCPenney	7.60%		Imperial Brands	7%
Target Corp.	2.90%	Nordstrom	8.80%		Vector Holding	2.60%
BJ's Wholesale Club	2.50%	Walmart	11.60%		Other Firm 1	2.40%
Other Firm 1	2.10%	Sears	13.20%		Other Firm 2	2.10%
Other Firm 2	1.80%	Macy's	15.70%		Other Firm 3	1.90%
		Target	36.20%		Other Firm 4	1.50%
					Other Firm 5	0.50%
CR4	0.936		0.767			0.916

Step1:  To calculate CR4 in Wholesalers and Super marketers Industry take sum of share of top 4firms. B11=sum(large(B2:B5,{1,2,34}))

Step 2: To calculate CR4 in Department stores Industry take sum of share of top 4firms. D11= sum(large(D2:D5,{1,2,3,4}))  

Step3: To calculate CR4 in Cigarettes and Tabaco Industry take sum of share of top 4firms. 

G11= sum(large,(F2:F5,{1,2,3}))

RESULTS

Industry	Top Firms	CR4 (%)
Wholesalers and Supercenters	Walmart, Costco, Meijer, Target	93.6
Department Stores	Target, Macy's, Sears, Walmart	76.7
Cigarettes and Tobacco	Altria, Reynolds, Imperial, Vector	91.6

Analysis: The concentration ratio, or CR, measures the size of firms relative to the size of the whole industry.  In our context, CR4 measures the share of the top four farms relative to the whole industry. A more concentrated industry is a sign of a monopoly market. Actually, CR ranges from 0% to 100%. A concentration ratio of 0% to 50% indicates a perfectly competitive market and is considered a low concentration ratio. Whereas if the concentration ratio of the top five firms is more than 60%, it is considered an oligopoly market. If there is a single firm in an industry, then the CR would be 100%, which indicates a monopoly.

 

We have CR4 for three industries. The most concentrated industry is wholesalers and supercenters.

2. Calculation of HHI

 

The Herfindahl-Hirschman Index (HHI), another measure of concentration, is calculated by summing the squared market share of all firms in each industry.

 

Step 1: First, list all firms in each industry with their market share 

Step2: Calculate squared of share of each firm and take sum.

 

Wholesalers & Supercenters

A B V

Wholesalers and Supercenters	Mkt Share  %	Squared of market share= (Mkt Share)^2
Walmart	69.8	4872.04
Costco Wholesale	17.4	302.76
Meijer Inc.	3.5	12.25
Target Corp.	2.9	8.41
BJ's Wholesale Club	2.5	6.25
Other Firm 1	2.1	4.41
Other Firm 2	1.8	3.24
	HI=sum(C3:C9)	5209.36

Department Store

1	A	B	C
2	Department Stores	Mkt Share	Squared of market share=  (Mkt Share)^2
3	Neiman Marcus	3.00	9.00
4	Hudson's Bay	4.60	21.16
5	JCPenney	7.60	57.76
6	Nordstrom	8.80	77.44
7	Walmart	11.60	134.56
8	Sears	13.20	174.24
9	Macy's	15.70	246.49
10	Target	36.20	1310.44
11		HHI=sum(C3:C10)	2031.09

Cigarettes & Tobacco

1	A	B	C
2	Cigarettes and Tobacco	Mkt Share	Squared of market share=  (Mkt Share)^2
3	Altria Group	49.10	2410.81
4	Reynolds American	32.90	1082.41
5	Imperial Brands	7.00	49.00
6	Vector Holding	2.60	6.76
7	Other Firm 1	2.40	5.76
8	Other Firm 2	2.10	4.41
9	Other Firm 3	1.90	3.61
10	Other Firm 4	1.50	2.25
11	Other Firm 5	0.50	0.25
12		HHI=sum(C3:C11)	3565.26

Therefore

Industry	HHI
Wholesalers and Supercenters	5209.36
Department Stores	2031.09
Cigarettes and Tobacco	3565.26

3. HHI considers the relative size distribution of the firms. HHI up to the value of of 2500 is considered moderately concentrated. For a perfectly competitive industry, HHI tends to be zero, whereas if there is a single firm, then HHI reaches its maximum value of 10000. In this regard, the wholesalers and supercenters industry is highly concentrated. This industry has the highest CR4 and the highest HHI. The DOJ is most likely to allow a merger for the wholesalers and supply centers industry. 

 

· Based on CR4: Wholesalers and Supercenters (93.60%)

· Based on HHI: Wholesalers and Supercenters (5209.36)

Reference: See U.S. department of justice and FTC, Merger Guideline 2.1 (2023)

 

4. Merger Scenario Analysis: Nordstrom and Hudson's Bay

 

Suppose Nordstrom and Hudson's bay are merged, then the combined market share would be 8.80% + 4.6% = 13.40%. Now correct the excel file accordingly 

Department Stores	Mkt Share
Neiman Marcus	3.00%
Combined market	13.40%
JCPenney	7.60%
Walmart	11.60%
Sears	13.20%
Macy's	15.70%
Target	36.20%
CR4	78.50%

Therefore, after merging, CR4 is 78.5%. It does not change the scenario dramatically compared to the pre-merger scenario. 

Department Stores	Mkt Share	Squared of market share=
		(Mkt Share)^2
Neiman Marcus	3	9
Combined market	13.4	179.56
JCPenney	7.6	57.76
Walmart	11.6	134.56
Sears	13.2	174.24
Macy's	15.7	246.49
Target	36.2	1310.44
	HHI	2112.05

Therefore, post-merger HHI is 211.05. According to the DOJ HHI, a value up to 2500 is considered a moderate concentration. So, DOJ allows them to merge but arranges moderate scrutiny.

 

5. Merger Scenario Analysis: Macy's and Sears

 

If Macy's and Sears merge, then combined market share would be 15.70% + 12.20% = 28.90%

Department Stores	Mkt Share
Neiman Marcus	3.00%
Hudson's Bay	4.60%
JCPenney	7.60%
Walmart	11.60%
Nordstrom	8.80%
Combined Mkt	28.90%
Target	36.20%
CR4	85.50%

Department Stores	Mkt Share	Squared of market share=
		(Mkt Share)^2
Neiman Marcus	3	9
Hudson's Bay	4.6	21.16
JCPenney	7.6	57.76
Walmart	11.6	134.56
Nordstrom	8.8	77.44
Combined Mkt	28.9	835.21
Target	36.2	1310.44
	HHI=	2445.57

The updated HHI of 2445.57 reaches a highly concentrated threshold. In this case, the DOJ would likely scrutinize and could also challenge this merger due to a significant increase in market concentration. 

 

Report

 

Introduction: Market concentration is a measurement tool to identify whether a small number of firms dominate the whole industry.  High market concentration is not acceptable, as it leads to monopolist pattern. Consumption decreases due to a higher market price. Antitrust laws and regulations, imposed by the Department of Justice (DOJ), aims to prevent this type of behavior in market to maintain competitiveness. The above analysis evaluates market concentration in three different industries based on CR4 and HHI metrics.

 

CR4 and HHI

· CR4 of wholesalers and supercenters is 93.60%

· CR4 of Department Stores is 76.70%

· CR4 of Cigarettes and Tobacco is 91.60%

· HHI of wholesalers and supercenters is 5209.36

· HHI of Department Stores is 2031.09

· HHI of Cigarettes and Tobacco is 3565.26

Based on CR4 and HHI, it is seen that:

 

The wholesalers and supercenters industry is most concentrated. 

The cigarette and Tobacco industry is highly concentrated.

The department store industry is moderately concentrated.

 

Merger Scenario

 

We have seen two mergers. In the case of  Nordstrom and Hudson's Bay merger, we have a new CR4 as 78.5% and new HHI as 2112.05. This new HHI indicates moderate concentration. As said before, the merger might face moderate scrutiny, but the DOJ could allow the condition.

 

The updated CR4 and HHI in the case of the Macy's and Sears merger are 85.5% and 2445.57, respectively. As the DOJ considers up to a HHI value of 2400 as a moderate concentration, the new HHI value of 2445.57 is approaching highly concentrated threshold. This condition might face tight scrutiny by the DOJ and the DOJ could challenge it due to the significant increase in market concentration. 

 

Conclusion

 

We have seen that the wholesalers and supercenters industry is the most concentrated industry, followed by the cigarettes and tobacco industry. The department store industry is moderately concentrated. Due to mergers, the situation in the department store industry has changed. The Nordstrom and Hudson's Bay merger is more likely to be allowed by the DOJ, but the Macy's and Sears mergers might face significant challenge from antitrust agencies governed by the DOJ.