Question

Industry A has an HHI ratio of 4,400 while industry B has an HHI ratio of 800. Given this information, the Justice Department will likely scrutinize a potential horizontal merger in ___________.

a. Industry B

b. Neither industry A nor B

c. Industry A.

d. Industry A and B

Answer 1

Answer :-

Horizontal Merger is used for business consolidation , it occurs when competition tends to be higher between firms which are operating in same industry or sector .
And The Herfindahl-Hirschman Index (HHI) is used for determining the Market concentration of firms . The US department of Justice uses this index for potential merger plans.
According to the guidelines of Justice department , market is defined as :

Highly Competitive - HHI less that 1000

Moderate Concentrated - HHI of 1000 - 2500

Highly Concentrated - HHI of 2500 and greater

So , Those firms that will be scrutinized for Potential Horizontal Merger will have a HHI of less than 1000, as they will be highly competitive and the horizontal merger is used for consolidation of highly competitive markets.

From this explanation ,

Option ( a) - Correct , HHI of industry B is 800 which is less than 1000. So it will be highly competitive and will be scrutinize for potential horizontal merger.

Option. ( b) - Incorrect , Industry B will be scrutinize

Option. ( c) - Incorrect , HHI of industry A is 4400 which is higher then 1000 also 2500 , so it will be Highly Concentrated.

Option ( d) - Incorrect , Only Industry B will scrutinize nor Industry A