A horizontal merger is a merger between firms that produce and sell the same products. When one firm wants to buy another firm, the buyer must obtain approval from the U.S Department of Justice and the Federal Trade Communication. These agencies are charged with evaluating the impact of the merger on market participants and have the power to approve or deny any merger. To evaluate the impact of the merger, the agencies use the Herfindahl Hirschman Index (HHI) to study changes in competition. It's important to note that the agencies evaluate other market factors as well.

A horizontal merger is a merger between firms that produce and sell the same products. When one firm wants to buy another firm, the buyer must obtain approval from the U.S Department of Justice and the Federal Trade Communication. These agencies are charged with evaluating the impact of the merger on market participants and have the power to approve or deny any merger. To evaluate the impact of the merger, the agencies use the Herfindahl Hirschman Index (HHI) to study changes in competition. It's important to note that the agencies evaluate other market factors as well.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter15: Imperfect Competition

Section: Chapter Questions

Problem 15.9P

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The Department of Justice and the Federal Trade Commission use the HI calculation for a market to evaluate proposed horizontal mergers. For example, if the post-merger HHI is below ——- , then the market is not concentrated, so mergers in them are not challenged; however, at the other extreme, if the post-merger HHI is above ——- then the market is highly concentrated, and mergers that increase the HHI by 100 to 200 points may be challenged and mergers that increase the HHI by more than 200 points will likely be challenged. (Enter your responses as integers.)
A horizontal merger is a merger between firms that produce and sell the same products. When one firm wants to buy another firm, the buyer must obtain approval from the U.S Department of Justice and the Federal Trade Communication. These agencies are charged with evaluating the impact of the merger on market participants and have the power to approve or deny any merger. To evaluate the impact of the merger, the agencies use the Herfindahl Hirschman Index (HHI) to study changes in competition. It's important to note that the agencies evaluate other market factors as well. Firms Dollar Tree Dollar General Family Dollar 99 Cent Only Store Dollar Wow Dollar Central a.) Calculate the HHI for the industry. Show work. Market Sales ($ millions) 12 10 8 8 10 2 b.) Assume that Dollar Tree would like to buy (merge with) Dollar Central. Calculate the post-merger HHI. Show work. c.) Assume the Federal Trade Commission uses the following rule: AHHI < 100 → Merger will be approved. AHHI ≥100 → Merger…
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