Answer:
HP and Compaq
Value of HHI Desktop PC Servers
a) Before the merger 429 1,177
b) After the merger 621 1,616
c) Considering the HHI values determined in the various markets above (before and after the merger) and the DoJ merger guidelines, the DoJ seems to be right in allowing the merger to take place with respect to the desktop PC market as the 200 basis point mark was not reached. This is not the same with respect to the servers market, where the combined value of HP Compaq exceeds the 200 basis point mark.
Explanation:
a) Data and Calculations:
Pre-merger market shares in the desktop PC and servers markets:
Desktop PC Servers
Market Market
Dell, 13 7
Compaq, 12 16
HP, 8 14
IBM, 6 26
Gateway, 4 0
HHI in the desktop PC market = 13² + 12² + 8² + 6² + 4²
= 169 + 144 + 64 + 36 + 16
= 429
HHI in the servers market = 7² + 16² + 14² + 26² + 0² =
= 49 + 256 + 196 + 676
= 1,177
After the merger:
Desktop PC Servers
Market Market
Dell, 13 7
HP Compaq 20 30
IBM, 6 26
Gateway, 4 0
HHI in the desktop PC market = 13² + 20² + 6² + 4²
= 169 + 400 + 36 + 16
= 621
HHI in the servers market = 7² + 30² + 26² + 0²
= 40 + 900 + 676
= 1,616
Value of HHI Desktop PC Servers
a) Before the merger 429 1,177
b) After the merger 621 1,616
Market power of Compaq and HP in the desktop PC market before the merger = 208/429 = 48.5% (144 + 64)/429
Market power of HP Compaq in the desktop PC market after the merger = 400/621 = 64.4%
Increase in basis point (HHI) = 192 (621 = 429)
Market power of Compaq and HP in the servers market before the merger = 452/1,177 = 38.4% (256 + 196)/1,177
Market power of HP Compaq in the servers market after the merger = 900/1,616 = 55.7%
Increase in basis point (HHI) = 439 (1,616 - 1,1177)