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In the HHI, a merger between two small firms can have significant effects if the market...

In the HHI, a merger between two small firms can have significant effects if the market is mischaracterized. Could you please describe what is market mischaracterized and why this statement is correct?

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Answer #1

Market mischaracterization is when the market is classified incorrectly and firms which are large in size are classified as small firms.

As a result of this, firms which are marked as small are allowed to merge as per the merger guidelines and end up controlling a very large share of the market, leading to anti-competitive practices.

This makes the statement correct, as if the market is mischaracterized, merger of small firms leads to significant impacts on the industry as the merged firm ends up controlling a larger market share.

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