You are the manager in a market composed of five firms, each of which has a 20 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors.
a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market.
b. Suppose that any two of these firms merge. What is the post merger HHI?
c. Based only on the information contained in this question and on the U.S. Department of Justice Horizontal Merger Guidelines described in this chapter, do you think the Justice Department would attempt to block a merger between any two of the firms? Explain.