Question

Suppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 3,195. Case’s share of that market was 16 percent, while Fiat comprised just 8 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase?

Based only on this information, is the Justice Department likely to challenge the merger according to the Horizontal Merger Guidelines?

Answer 1

Herfindahl-Hirschman index (HHI) is calculated as sum of square of market share of all firms. Without merger, HHI include square of market share of Case and Fiat as 16^² + 8^² = 320 while they capturer 24% of the market share after merger which is included in HHI as 24^² = 576. Thus, HHI increase by 576 - 320 = 256

Yes, Justice Department is not likely to raise voice because they challenge others in case of increase in market concentrartion or increase in competition in market which is not the case here rather competitive have decreased.