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# HHI Index

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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 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, do you think the Justice Department would challenge the merger? Explain?

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The HHI Index will rise by:
(27+13)^2 - 27^2 - 13^2 = 702

Based on this information the ...

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## 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?

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