Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 20

You are the manager in a market composed of eight firms, each of which has a 12.5 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors.
a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market.
b. Suppose that any two of these firms merge. What is the postmerger HHI?
c. Based only on the information contained in this question and on the Horizontal Merger Guidelines described in this chapter, do you think the Justice Department (or FTC) would attempt to block a merger between any two of the firms? Explain.