The U.S. DOJ Merger Guidelines use a Herfindahl index–based screen for an initial assessment of a…

The U.S. DOJ Merger Guidelines use a Herfindahl index–based screen for an initial assessment of a merger. In the case of bank mergers, if the premerger value of H exceeds 1,800 and the increase in H resulting from the merger exceeds 200, then the merger is referred for detailed competitive analysis. Suppose that there are initially five firms of equal size.

(a) The merged firm is initially assumed to have twice the market share of the other firms. Would this merger qualify for further scrutiny under the guidelines?

(b) Now suppose that post merger, all firms are again of equal size, such as, for example, a Cournot model would predict. Now would the merger violate the criteria in the guidelines?

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