In what situation are the Department of Justice and Federal Trade Commission most likely to challenge the merger between two competitors?
A)When the Herfindahl index is close to 0 and the number of firms is large
B)When targeted price discounts can be implemented by rival firms
C)When the merger threatens to substantially increase market concentration
D)When the merger threatens to substantially decrease market concentration
E)In a large industry with many competitors, each having a relatively equal market share

Question

Quizplus · Accepted Answer

The Department of Justice and Federal Trade Commission are most likely to challenge a merger between two competitors when it threatens to substantially increase market concentration. This means that the combined firm would have a significant share of the market, potentially leading to reduced competition and higher prices for consumers. The Herfindahl index is used to measure market concentration, and a high index score would indicate a more concentrated market. Therefore, when the Herfindahl index score is high and the merger would increase it further, the regulators are more likely to challenge the merger. Option A is not correct because a close-to-0 index score would indicate a highly competitive market, which is less likely to be challenged. Option B is not a good choice because targeted price discounts can be a form of competition, and regulators would not usually challenge a merger that makes rivals more competitive. Option D is incorrect because a merger that decreases market concentration might improve competition, and not warrant regulatory action. Option E is also incorrect because in a large industry with many competitors and roughly equal market shares, a merger between two firms would not significantly affect market concentration.

In What Situation Are the Department of Justice and Federal