Suppose there are two industries, A and B. Suppose that mergers are proposed in both industries, and the Herfindahl-Hirschman Index would increase by 500 in each one. If antitrust officials allow the mergers in industry A but challenge the mergers in industry B, the most likely explanation is that
A) there are political motivations to antitrust enforcement
B) industry A was already less competitive than industry B
C) industry A had a balanced oligopoly and industry B did not
D) industry A started as a more competitive industry than B
E) antitrust authorities made a random decision

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) measures market concentration, and an increase indicates a move towards less competition. If antitrust officials allow a merger in an industry where the HHI increases by the same amount as in another industry where the merger is challenged, the most likely explanation is that the starting point for competition was different. Industry A, where the merger was allowed, likely started as more competitive (lower HHI) than Industry B, meaning that even after the merger, it remained sufficiently competitive in the eyes of the antitrust officials.

Suppose There Are Two Industries, a and B