6. An industry with aHerfindahl-Hirschman index (HHI) less than 1,000 is regarde

Question

6.   An industry with aHerfindahl-Hirschman index (HHI) less than 1,000 is regarded ascompetitive; an index between 1,000 and 1,800 indicates amoderately concentrated market; and an index above 1,800 indicatesa concentrated market. In a moderately concentrated market, amerger that would increase the index by 100 points is challenged bythe Justice Department. In a concentrated market, a merger thatwould increase the index by 50 points is challenged.

Suppose that in the market for tires, Michelin has a 35% marketshare, Goodyear has a 30% market share, Bridgestone has a 20%market share, Continental has a 10% market share, and Yokohama hasa 5% market share.

The Justice Department would consider the tire market _________,and it _________ a merger between Bridgestone and Yokohama.
A.   Concentrated; would not challenge B.   Moderately concentrated; would notchallenge C.   Concentrated; would challenge D.   Moderately concentrated; wouldchallenge

Explanation / Answer

hence, it indicates a concentrated market. as the market concentration increases, competition andefficiency decreases and thus chances of collusion and monopolyincrease.
so the answer is: C: concentrated; would challenge

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