(a) Suppose Fiat recently entered into an Agreement and Plan of Merger with Case

Question

(a) Suppose Fiat recently entered into an Agreement and Plan of Merger with Case for $4.3 billion. Prior to the merger, the market for four-wheel-drive tractors consisted of five firms. The market was highly concentrated, with a Herfindahl-Hirschman index of 3,085. Case’s share of that market was 11 percent, while Fiat comprised just 7 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase?



(b) Based only on this information, is the Justice Department likely to challenge the merger according to the Horizontal Merger Guidelines?

Explanation / Answer

(a) postmerger Herfindahl-Hirschman index will increase by: (11 + 7)2 - 112 - 72 = 324 - 121 - 49 = 154

(b) Possibly - but other factors will be considered.

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