Question

An industry has an HHI of 1,800 and a horizontal merger is being considered between two firms. As a result of the merger, the HHI will increase by 50 points. Which of the following statements is correct?

Group of answer choices

The DOJ would initially classify the industry as unconcentrated. The proposed merger would trigger an investigation, but the merger would likely be allowed.

The DOJ would initially classify the industry as moderately concentrated. The proposed merger would trigger an investigation, and the merger would likely not be allowed.

The DOJ would initially classify the industry as moderately concentrated and the proposed merger would be allowed.

The DOJ would initially classify the industry as moderately concentrated. The proposed merger would trigger an investigation, and the merger would likely be allowed.

The DOJ would initially classify the industry as unconcentrated and the proposed merger would be allowed.

Answer 1

Department of Justice classifies a markets or industries based on their HHI into three categories.

HHI below 1,500 - Unconcentrated market or industry

HHI between 1,500 and 2,500 - Moderately concentrated market or industry

HHI above 2,500 - Highly concentrated market or industry

The HHI of the given industry is 1,800.

So, this industry would be classified as moderately concentrated by the DOJ.

The HHI of this industry increases by 50 points after merger of two firms in this industry.

In case of moderately concentrated industry, if merger increases HHI by less than 100 points then there is no concern on part of DOJ as such increase is unlikely to impact the competitive environment in the industry in adverse manner.

Thus,

The correct answer is the option (3) [The DOJ would initially classify the industry as moderately concentrated and the proposed merger would be allowed].