Assume firm A wants to merge with firm B for $7.5 billion. Before the potential merger, the market for the good produced by firm A and B consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 2,621. Firm B’s share of that market was 30 percent, while firm A comprised just 20 percent of the market. If approved, by how much would the post merger Herfindahl-Hirschman index increase? Based only on this information, do you think the DOJ would challenge the merger? Explain.
*Note* -Based on the Department of Justice (DOJ) guideline, The FTC will challenge the merger if the pre-merger HHI exceeds 1800 and the increase following the merger is higher than 100