Question

Jon Tinsley, a financial analyst at TC, is asked to evaluate the likelihood of an antitrust challenge for a given business combination. There are five firms in the industry, each with a 20% market share. He is informed that two of the five firms decide to merge. Based on the information provided to Jon, calculate the post merger HHI and determine whether an antitrust challenge is likely.

Answer 1

Pre merger HHI = s1^2 + s2^2 + s3^2 + ... + sn^2

(where s is the market share of each firm expressed as a whole number, not a decimal)

Pre-merger HHI = 20^2 + 20^2 + 20^2 + 20^2 + 20^2 = 2,000

Post merger,

s1 = 20%

s2 = 20%

s3 = 20%

s4 = 40%

Post-merger HHI = 20^2 + 20^2 + 20^2 + 40^2 = 2,800

Change in pre-and post-merger HHI = 2,800 - 2,000 = 800

Since Post-merger HHI is greater than 1,800, and the change in pre-and post-merger HHI is 50 or more, antitrust challenge is most probable