M8D1 Post CH.docx - M8D1 Something is Brewing March 4 2020...

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M8D1: Something is Brewing March 4, 2020 The Herfindahl-Hirschman Index (HHI) measures the market concentration. HHI adds the squared market shares of all the firms in the industry and places more weight on firms with higher market share (Baye & Prince, 2017, p207). The U.S. Department of Justice utilize the HHI as an indicator whether prospective mergers will raise antitrust concerns. The DOJ evaluates using the following scale: HHI <=1,500 is competitive; 1,500 to 2,500 is moderately concentrated; HHI > 2,500 is highly concentrated (Baye & Prince, 2017, p. 440). The craft wine market consists of eight firms, each possessing a 12.5% market share and a premerger HHI of 1,250, is considered a competitive market. If a merger was to take place, the new market would consist of seven firms, where six of the seven firms have a market share of 12.5% and the remaining firm has a 25% market share. The post-merger HHI would be 1,562.5 which is considered moderately concentrated. There is an increase of 312.5 points between the pre-merger and post-merger HHI indexes.

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