New Cola announced its intention to buy Old Cola, and Rival Cola said it would buy Other Cola. The Federal Trade Commission (FTC) reviewed the proposed transactions, looking at the size of the companies in relation to the size of the industry. The FTC decided to block the mergers. On what did the FTC base its decision?

Question

Quizplus · Accepted Answer

The FTC based its decision on the Herfindahl-Hirschman index. The Herfindahl-Hirschman index is a measure of the size of companies in relation to the size of the industry. The calculation measures the amount of competition that the companies represent within an industry. If the index is high, then the FTC will block a merger.

New Cola Announced Its Intention to Buy Old Cola, and Rival