There are 7 firms in an industry. Firms 1 and 2 each have a 20% share and the other 6 firms each have a 7.5% share. Firms 7 and 8 decide to merge. (i) Calculate the pre-merger and post-merger Herfindahl-Hirschman Index (HHI). (ii) Use the table below to evaluate the likelihood of an antitrust challenge. HHI Concentration Level and Possible Government Action Post-Merger HHI Concentration Change in HHI Government Action Less than 1,000 Not concentrated Any amount No action Between 1,000 and 1,800 Moderately concentrated 100 or more Possible challenge More than 1,800 Highly concentrated 50 or more Challenge
There are 7 firms in an industry. Firms 1 and 2 each have a 20% share and the other 6 firms each have a 7.5% share. Firms 7 and 8 decide to merge. (i) Calculate the pre-merger and post-merger Herfindahl-Hirschman Index (HHI). (ii) Use the table below to evaluate the likelihood of an antitrust challenge. HHI Concentration Level and Possible Government Action Post-Merger HHI Concentration Change in HHI Government Action Less than 1,000 Not concentrated Any amount No action Between 1,000 and 1,800 Moderately concentrated 100 or more Possible challenge More than 1,800 Highly concentrated 50 or more Challenge
Chapter23: Corporate Restructuring
Section: Chapter Questions
Problem 7P
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There are 7 firms in an industry. Firms 1 and 2 each have a 20% share and the other 6 firms each have a 7.5% share. Firms 7 and 8 decide to merge.
(i) Calculate the pre-merger and post-merger Herfindahl-Hirschman Index (HHI).
(ii) Use the table below to evaluate the likelihood of an antitrust challenge.
HHI Concentration Level and Possible Government Action
|
|||
Post-Merger HHI |
Concentration |
Change in HHI |
Government Action |
Less than 1,000 |
Not concentrated |
Any amount |
No action |
Between 1,000 and 1,800 |
Moderately concentrated |
100 or more |
Possible challenge |
More than 1,800 |
Highly concentrated |
50 or more |
Challenge |
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