Determine if the Justice Depatment would challenge a merger between two firms in an industry with ten equal-sized firms,based on its Herfindahl-index guidelines only.
This index is defined as the sum of the squares of the market shares of each individual firm. The calculation will be somewhere between 0 and 1. The closer an individual firm is to 1, the closer they are to being a monopoly, which the DOJ rightly will not allowed – in most instances anyway.
The ultimate question is if competition is lessened by the merger. This determination is assisted by the index, but is subjective. I’d guess that trends over the past couple of measurable periods will go into the final determination as well.
The link below is from the DOJ website, and spells out how they go about determining if a merger helps competition, or hurts competition.
This index is defined as the sum of the squares of the market shares of each individual firm. The calculation will be somewhere between 0 and 1. The closer an individual firm is to 1, the closer they are to being a monopoly, which the DOJ rightly will not allowed – in most instances anyway.
The ultimate question is if competition is lessened by the merger. This determination is assisted by the index, but is subjective. I’d guess that trends over the past couple of measurable periods will go into the final determination as well.
The link below is from the DOJ website, and spells out how they go about determining if a merger helps competition, or hurts competition.
References :
http://www.usdoj.gov/atr/public/guidelines/horiz_book/toc.html