A fellow student claims that the federal government should block all mergers in monopolistically competitive industries that raise the Herfindahl-Hirschman Index above 1,800.Which of the following is the best response to this claim?

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index is a measure of concentration in a market, but it does not provide information about the behavior or performance of firms. Therefore, using the HHI as the sole determinant for a government to block mergers is not appropriate. The government must also consider other factors such as the potential effects of the merger on consumer welfare and economic efficiency.

A Fellow Student Claims That the Federal Government Should Block