A market has ten firms, whose market shares are given in the table above

a) If firms I and J wanted to merge, according to the Department of Justice guidelines, would the Department of Justice challenge the merger? b) If firms A and B wanted to merge, according to the Department of Justice guidelines, would the Department of Justice challenge the merger?


a) The decision whether to challenge the merger depends, in part, on the market's Herfindahl-Hirschman Index (HHI). The HHI for the market initially is 1,150. Thus the Department of Justice guidelines say it will challenge a merger if the merger raises the HHI by 100 or more points. If firms I and J merge, the HHI becomes 1,200. The Department of Justice will not challenge this merger.
b) If firms A and B merge, the HHI becomes 1,600. The Department of Justice will challenge this merger.

Economics

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