There are 9 firms in an industry. Firms 1 and 2 each have a 15% share and the other 7 firms each have a 10% share. Firms 1 and 2 decide to merge.

(i) Calculate the pre-merger and post-merger Herfindahl-Hirschman Index (HHI). (5 marks)

(ii) Use the table below to evaluate the likelihood of an antitrust challenge. (3 marks)

HHI Concentration Level and Possible Government Action

Post-Merger HHI

Concentration

Change in HHI

Government Action

Less than 1,000

Not concentrated

Any amount

No action

Between 1,000 and 1,800

Moderately concentrated

100 or more

Possible challenge

More than 1,800

Highly concentrated

50 or more

Challenge