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Market Concentration
Once the product and geographic markets have been established, the individual market shares of the merging firms are examined. Market shares will be determined by using the HHI. Under the HHI, market concentration will equal the sum of the squares of the individual market shares of every firm in the market. For example, if there were only four firms in a particular market, each with 25% of the market, the HHI would be 2,500 (25 2 x 4). Any market with an HHI over 1,800 is considered highly concentrated by the enforcement agencies and viewed with some suspicion; between 1,800 and 1,000 the market is considered moderately concentrated; and below 1,000, the enforcement agencies consider such markets to be unconcentrated.Mergers producing an increase in the HHI of more than 50 points in highly concentrated markets will raise significant antitrust concerns. A merger that increases the HHI by more than 100 points in highly concentrated markets is considered to create market power and is likely to be challenged by the enforcement agencies.
The HHI is used because it reflects, more importantly, the distribution of the market shares of the top firms and the composition of the market outside of the top firms. It will also give proportionately greater weight to the market shares of the larger firms in accordance with their relative importance in competitive interactions.
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