Suppose Fiat recently enetered into an Agreement and Plan of Merger with Case fo

Question

Suppose Fiat recently enetered 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 3,025. Case's share of that market was 27 percent, while Fiat comprised just 13 percent of the market. If approved, by how much would the postmerger Herfindahl-Hirschman index increase? Based only on this infomraiton, do you think the Justice Department would challenge the merger? Explain.

Explanation / Answer

If approved, the merger would raise the HHI by 2( .27)(.13 )(10,000 ) = 702 points. Since the pre-merger HHI is 3,025, which is greater than the Guidelines (1,800), and the HHI increases by 702 (which is greater than the 100 points permitted in the Guidelines), it is unlikely that the merger will receive unconditional approval.

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