The U.S. Department of Justice (DoJ) uses the Herfindahl index to evaluate the impact of a proposed horizontal merger between firms on the degree of market concentration.
You consider an industry with 15 firms. Their market shares are as follows:
Company Market Share
A 25%
B 20%
C 15%
D 10%
E 5%
There are 10 identical firms in the industry. Compute the Herfindahl index.
(H <.10 means low concentration, H up to .14 is moderate concentration, H>.18 means high concentratoin)
a. Companies A and B merge, calculate the pre and post-merger Herfindahl index. What should the reaction of the DoJ be according to the Agency standards?
b. Companies A and D merge, calculate the pre and post-merger Herfindahl index. What should the reaction of the DoJ be according to the Agency standards?
c. Companies A and E merge, calculate the pre and post-merger Herfindahl index. What should the reaction of the DoJ be according to the Agency standards?