Question

Consider the data from Problem $27-11$. Suppose that antitrust authorities have determined that there are separate relevant markets for e-books and physical books. In addition, these authorities perceive that a monopoly situation exists that can be challenged on legal grounds if the value of the Herfindahl-Hirschman Index exceeds $5000$ . On the basis of this criterion, do the antitrust authorities conclude that there are grounds for a legal challenge in either market? Explain.

Short answer

Because$HHI$'s market value in physical books is less than $5000$, antitrust regulators can conclude that there is no basis for a legal challenge in the physical-books market.

Because the value of $HHI$ in the E-books market above $5000$, financial regulators can assume that the E-books market justifies legal action.

Step-by-step solution

Introduction.

The term "e-book" refers to a digital book. All pages of an e-book are in digital format, which implies the book has been converted to an electronic format.

Given Data.

The value of the Herfindahl-Hirschman index for the e-book market is calculated as follows:

$\mathrm{HHI}={75}^2+5^2+5^2+5^2+5^2+5^2$

$\mathrm{HHI}=5625+25+25+25+25+25$

$\mathrm{HHI}=5750$

For the e-book market, the herfindahl-hirschman index has a value of$5750.$

Explanation.

If the value of $\mathrm{HHI}$exceeds role="math" localid="1652192750333" $5000$, authorities believe a monopoly situation exists in the market, which can be contested on legal grounds.

Since the price of $\mathrm{HHI}$in the E-books market above $5000$, antitrust authorities can decide that the E-books market warrants legal action.

Introduction

Physical books are referred to as printed books. Physical books are referred to as printed books.

Given data.

The value of the Herfindahl-Hirschman index for the e-book market is calculated as follows:

$\mathrm{HHI}={42}^2+{20}^2+19.5^2+4.5^2+4^2$

$\mathrm{HHI}=1764+400+380.5+20.25+16$

$\mathrm{HHI}=2580.5$

For the e-book market, the herfindahl-hirschman index has a value of$2580.5$.

Explanation.

If the value of $\mathrm{HHI}$exceeds$5000$, authorities believe a monopoly situation exists in the market, which can be contested on legal grounds.

Because $\mathrm{HHI}$'s market value in physical books is less than $5000$, antitrust authorities can infer that there is no basis for a legal challenge in the physical-books market.