econ

Case Study #2:

Market Concentration and Antitrust Analysis

Scenario: There are several industries in the US with high levels of market concentration, such

as Wholesalers and Supercenters, Department Stores, and Cigarette and Tobacco Production.

The data provided includes market shares from firms in these industries as reported by the IBIS

World Database, with hypothetical firms added in cases where 100% of the market is not

reported.

Assignment Details

Objective:

To use Excel for data analysis and apply economic concepts to evaluate market concentration,

calculate industry concentration ratios, and analyze potential antitrust issues related to mergers.

Instructions:

1. Calculating the CR4:

• For each industry (Wholesalers and Supercenters, Department Stores, and

Cigarette and Tobacco Production), calculate the Concentration Ratio of the top 4

firms (CR4).

• Determine which industry appears most concentrated based on the CR4 measure.

• Deliverable: An Excel table showing the CR4 calculations for each industry and

a brief analysis of which industry is most concentrated.

2. Calculating the HHI:

• For each industry, calculate the Herfindahl-Hirschman Index (HHI) by summing

the squared market shares of all firms in each industry.

• Determine which industry appears most concentrated based on the HHI measure.

• Deliverable: An Excel table showing the HHI calculations for each industry and a

brief analysis of which industry is most concentrated.

3. Antitrust Analysis:

• Analyze in which industry the Department of Justice (DOJ) would be most likely

to allow a merger based on the calculated concentration ratios.

• Deliverable: A written explanation of your findings, supported by your CR4 and

HHI calculations.

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

• Suppose Nordstrom and Hudson's Bay decide to merge. Calculate the new CR4

and HHI for the Department Stores industry if the merger goes through.

• Analyze whether antitrust agencies would be likely to challenge this merger and

explain why or why not.

• Deliverable: An Excel table showing the new CR4 and HHI calculations post-

merger, and a written analysis of the potential antitrust implications.

5. Merger Scenario Analysis - Macy's and Sears:

• Return to the original data and repeat the merger analysis for Macy's and Sears.

Calculate the new CR4 and HHI for the Department Stores industry if this merger

goes through.

• Analyze whether antitrust agencies would be likely to challenge this merger and

explain why or why not.

• Deliverable: An Excel table showing the new CR4 and HHI calculations post-

merger, and a written analysis of the potential antitrust implications.

Excel Data and Calculations

Step 1: Calculating the CR4

• Create a CR4 Table:

• List the top firms in each industry.

• Calculate the CR4 by summing the market shares of the top 4 firms for each

industry.

Step 2: Calculating the HHI

• Create an HHI Table:

• List all firms in each industry.

• Calculate the HHI by summing the squared market shares of all firms in each

industry.

Step 3: Antitrust Analysis

• Analyze CR4 and HHI:

• Use the calculated CR4 and HHI values to determine market concentration levels

and potential for mergers.

• Compare the concentration levels to DOJ guidelines for merger evaluations.

Step 4: Merger Scenario Analysis

• New CR4 and HHI Calculations:

• For each merger scenario (Nordstrom and Hudson's Bay, Macy's and Sears),

update the market shares and recalculate the CR4 and HHI.

• Analyze the impact of these mergers on market concentration and potential

antitrust issues.

Submission Requirements

1. Excel File:

• Submit an Excel file with all your calculations, tables, and analysis.

• Ensure all formulas and data are correctly inputted and clearly labeled.

2. Written Report:

• Submit a comprehensive report that includes the following sections:

• Introduction: Overview of market concentration and antitrust analysis.

• CR4 and HHI Calculations: Detailed calculations and analysis of market

concentration.

• Antitrust Analysis: Evaluation of potential mergers and antitrust

implications.

• Merger Scenarios: Analysis of the impact of proposed mergers on market

concentration and antitrust challenges.

• Conclusion: Summary of findings and recommendations.