Author Question: If an industry's Herfindahl-Hirschman Index is below 1,000, a merger between any two firms in that ... (Read 81 times)

renzo156 · **on:** Jun 29, 2018

If an industry's Herfindahl-Hirschman Index is below 1,000, a merger between any two firms in that industry will be disallowed. Comment on the accuracy of the previous statement.

What will be an ideal response?

Question 2

If Jack is a utility maximizer, shouldn't a fall in the price of popcorn cause an increase in his marginal utility of popcorn?

What will be an ideal response?

raenoj · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

The statement is incorrect in at least three dimensions. First, the lower the Herfindahl-Hirschman Index, the more competitive the industry and hence the more likely the government will allow a merger to occur. Second, even if the Herfindahl-Hirschman Index is high, a merger that increases it only a small bit will not be challenged. And third, the Herfindahl-Hirschman Index is only part of the information considered when the government is determining whether to challenge a merger.

Answer to Question 2

No. If the price of popcorn drops, Jack will buy more popcorn. With diminishing marginal utility, his total utility from popcorn will increase but his marginal utility from popcorn will fall.