uppose an industry consists of five equal-sized firms. Two of the firms plan to merge. The merger raise anti-trust concerns at the Justice Department given that the Herfindahl index before the merger was and the merger would cause the Herfindahl index to rise by . Group of answer choices

The available options are:

a. would; between 1,000 and 1,800; more than 100

•b. would; greater than 1,800; more than 100

•c. would not; less than 1,000; less than 300

•d. would not; between 1,000 and 1,800; less than 100

•b. would; greater than 1,800; more than 100

1.  Would

2.  Greater than 1,800

3.  More than 100

Explanation:

Given that, Herfindahl-Hirschman Index (HHI) is a term that describes the measure of market concentration and is often used to assess the market competitiveness, most specifically during the pre- and post Mergers and Acquisitions transactions.

Also, it should be noted that, as a general rule, mergers that increase the HHI by more than 200 points in highly concentrated markets raise antitrust concerns.

Thus, a 100% market share, equates to Herfindahl-Hirschman Index (HHI) 10,000. However, since all the five firms are of equal sizes of Market shares then, the HHI is calculated as:

= 100%/ 5 firms = 20% each

= 20² + 20² + 20² + 20² + 20²

= 400 + 400 + 400 + 400 + 400

= 2000 (this is greater than 1800)

Then, since it is two firms that are merging,

The HHI is calculated as:

= 20² + 20²

= 400 + 400

= 800 ( an increase of 400, which is more than 100)

Hence, suppose an industry consists of five equal-sized firms. Two of the firms plan to merge. The merger WOULD raise anti-trust concerns at the Justice Department given that the Herfindahl index before the merger was GREATER THAN 1800 and the merger would cause the Herfindahl index to rise by MORE THAN 100.

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