The following are the approximate U.S. market shares of dissimilar cigarette companies: Altria, 47 percent; Reynolds American, 26 percent; Imperial, 5 percent; Lorillard, 14 percent; total for all other brands, 8 percent. Suppose “all other brands” each have less than a one-percent share.
1) Calculate the Herfindahl for this market, showing how you arrived at this number.
2) Suppose that Reynolds American were to acquire Lorillard, as it has announced – However suppose Reynolds American is planning to not sell off any Lorillard brands. Calculate the post-merger Herfindahl, showing how you arrived at this number.
3) Would federal antitrust agencies be likely to become concerned to see a Herfindahl increase of the magnitude you computed as [(b) - (a)], as well as the projected SSNIP, and challenge the merger? Describe why or why not?