Suppose the market for dishwashing liquid has the following

Suppose the market for dishwashing liquid has the following firms and market shares:

Cascade - 50%, Palmolive – 30%, Dawn – 10%, Sparkle – 10%
a. Calculate the Herfindahl-Hirschman Index (HHI) for this industry.
b. Suppose Sparkle and Dawn try to merge to form “Sparkling-Dawn.” Given the DOJ guidelines, would this merger be DOJ? Explain.
c. What other factors besides the HHI would the DOJ consider in determining whether or not to allow a merger?

Solution

Calculation of HHI

b. Sparkle and Dawn want to get merged in that case the industries HHI will change

The department of justice would oppose the merger. If the merger occurred. The HHI of the industry would be 3800 After the merger. The merger would increase the HHI by 200 points. The DoJ guidelines are to challenge a merger if initial HHI is greater than 1800 and merger raises HHI by more than 50 points.

C. Factors which will be considered other than HHI