Market concentration

Herfindahl-Hirschman Index (HHI): sum of squared market shares (can be between ~0 and 10,000)

Projected market shares (from the merger) are used to estimate changes in concentration

Concentration is given more weight when historically stable

Rule of thumb: market with n equal-sized firms has an HHI of 10,000/n

Increase in HHI equals the product of the merging firms’ market shares times 2

Using post-merger HHI: market HHI greater than 1,800 AND change in HHI greater than 100

Using merged firm’s market share: share greater than 30% AND change in HHI greater than 100 (such a firm must buy a firm with a market share ≤ 50/30)

Math example: 2*30*x ≤ 100 → x ≤ 100/(2*30) → x ≤ 50/30)
Administrability concern: these thresholds include so many transactions that agencies can’t credibly evaluate them all
K-firm index: old approach, measures the market share of the k largest firms (used in PNB)