Question

The Department of Justice measures market concentration using the Herfindahl-Herschman Index, and uses the
level and change in the index as an aid to determining whether a merger or acquisition is likely to enhance the
market power of firms. The details may be found here: https://www.justice.gov/atr/file/810276/download .
a. How does the agency define an unconcentrated market, a moderately-concentrated market, and a
highly-concentrated market?
b. Under what conditions is a merger or acquisition presumed to enhance market power?
c. Under what conditions is a merger considered unlikely to have adverse competitive effects?

Answer 1

(a)

Department of Justice classifies markets into the three categories based on the value of Herfindahl-Herschman index of the respective market -

1. A market in whose case the value of Herfindahl-Herschman Index is below 1500 is defined as an unconcentrated market.

2. A market in whose case the value of Herfindahl-Herschman Index is between 1500 and 2500 is defined as moderately concentrated market.

3. A market in whose case the value of Herfindahl-Herschman Index is above 2500 is defined as highly concentrated market.

(b)

If two or more than two firms merge and their merger leads to increase in HHI of the industry by more than 200 points then in that case such merger or acquisition is persumed to enhance the market power.

(c)

If two or more than two firms in an industry merge and their merger leads to increase in HHI of the industry by less than 100 points then in that case such merger or acquisition is considered unlikely to have adverse competitive effects.