Asked by Ragena Riley on May 11, 2024
Verified
Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 5,500. The antitrust authorities will most likely
A) ignore this merger because of the relatively small increase in the Herfindahl index.
B) allow the merger but watch the new firm carefully for future violations of the antitrust laws.
C) allow the merger if foreign entry to the industry is possible.
D) prevent the merger, contending that it violates the Clayton Act.
Herfindahl Index
A measure of market concentration, calculated by summing the squares of the market shares of all competitors within an industry.
Clayton Act
A U.S. legislation enacted in 1914 aimed at promoting competition among businesses by prohibiting certain types of anti-competitive practices.
U.S. Justice Department
A federal executive department responsible for the enforcement of the law and administration of justice in the United States.
- Analyze market share information and compute the Herfindahl index to evaluate the concentration within the market.
- Comprehend the objectives and outcomes of antitrust enforcement and industrial regulation policies.
Verified Answer
DM
Dionna ManningMay 13, 2024
Final Answer :
D
Explanation :
The Herfindahl index is a measure of market concentration, and an increase from 5,000 to 5,500 indicates a significant increase in concentration, which could reduce competition. The Clayton Act aims to prevent anticompetitive mergers, so a merger that significantly increases the Herfindahl index could be seen as violating this act, leading antitrust authorities to prevent the merger.
Learning Objectives
- Analyze market share information and compute the Herfindahl index to evaluate the concentration within the market.
- Comprehend the objectives and outcomes of antitrust enforcement and industrial regulation policies.