Which of the following measures is used by the Justice Department to evaluate the competitive effects of proposed mergers?
A)The Lerner Index.
B)The eight-firm concentration ratio for an industry.
C)The four-firm concentration ratio for an industry.
D)The Herfindahl-Hirschman Index.

Question

Quizplus · Accepted Answer

The Justice Department uses the Herfindahl-Hirschman Index (HHI) to evaluate the competitive effects of proposed mergers. The HHI is a measure of market concentration that takes into account the size distribution of firms in an industry. It is calculated by squaring the market share of each firm in the industry, and then summing the squared values. The Justice Department considers an HHI below 1500 to indicate a competitive market, an HHI between 1500 and 2500 as moderately concentrated, and an HHI above 2500 as highly concentrated. The higher the HHI, the greater the concern about the potential for reduced competition as a result of a proposed merger.

Which of the Following Measures Is Used by the Justice