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 3,025. Case’s share of that market was 27 percent, while Fiat comprised just 13 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?

• No.

• Possibly - but other factors will be considered.

• Yes.

Answer 1

A)

Post merger HHI = 3025 - 27² - 13² + (27+13)²

Post merger HHI = 3025 - 729 - 169 + 1600

Post merger HHI = 3727

Thus, once approved, the post merger HHI would increase by 3727 - 3025 = 702 points

B)

Yes, the merger will be challenged because the market was already highly concentrated before the merger (HHI > 2500), and the merger would increase the HHI even further, making market even more concentrated and thus challenged by the Horizontal Merger guidelines.