Which of the following is most likely to increase the Herfindahl index of a particular industry?
A) a horizontal merger between two of the industry's largest firms
B) a vertical merger between one of an industry's largest firms and one of the many input suppliers in the resource market
C) a conglomerate merger involving one of the industry's major firms
D) an agreement by all the industry firms to divide up the market among them

Question

Quizplus · Accepted Answer

A horizontal merger between two of the industry's largest firms will increase the concentration of market share within the industry, leading to a higher Herfindahl index. This is because the combined market share of the two largest firms will increase, which will increase the concentration of the industry. A vertical merger or conglomerate merger may not necessarily increase concentration within the industry. An agreement by all the industry firms to divide up the market among them would actually decrease market concentration and lower the Herfindahl index.

Which of the Following Is Most Likely to Increase the Herfindahl