Question

An industry has the following market shares:

25%

20%

10%

5%

Should a merger between the 2nd and 4th largest firms be allowed based on the Herfindhal Index? Why or why not?

Answer 1

herfindhal index used by the kargest firms to determine if the industry is competitive or nearly monopoly. the justice department uses this method to determine whether the meger is good for the competition or not in the market.

the calculation formula is calculated by squaring the market share.

for instance in above case 25^{2 +}20²⁺10²⁺5^{2 =} 1150

HHI under 1000 is considerd competitive. The justice department scutinize the merger which is between 1000 -1800 and one which exceeds the 18000 apporoval for such is completely rejected by the justice department.