Determine whether the Justice Department would challenge a merger between two firms in an industry with 10 equalized firms, based on the Herfindhal index guidelines. (No other factor considered)© BrainMass Inc. brainmass.com October 25, 2018, 6:27 am ad1c9bdddf
Percent share of each firm before merger=100%/10=10%
HHI Index ...
Solution determines whether the proposed merger in the given case is likely to be challenged.
Herfindahl Index (HHI)
Suppose the market for toy trains is comprised of the following seven competitors with the indicated market shares:
Little Toot Toys 55% Trains R Us 3%
I Think I Can 25% Thomas Trains 3%
Engines, Inc. 8% The Fastest Trains 2%
Silver Streak 4%
a. What is the Herfindahl Index (HHI) for this industry?
b. If there were a merger between Engines, Inc. and Silver Streak, what is the new industry Herfindahl Index?
c. Would the Justice Department allow such a merger?
d. Why or why not?
e. If there were a merger between I Think I Can and Engines, Inc., what is the new industry Herfindahl Index?
f. Would the Justice Department allow such a merger?
g. Why or why not?
h. If there were a merger between Silver Streak, Trains R Us, Thomas Trains and The Fastest Trains, what is the new industry Herfindahl Index?
i. Would the Justice Department allow such a merger?
j. Why or why not?