This worked economics sample shows how to calculate the Herfindahl-Hirschman Index (HHI) before and after a proposed merger, apply the current DOJ/FTC 2023 Merger Guidelines, and write a clear conclusion for an antitrust or market concentration assignment.
The pre-merger HHI is 1,308. After General Motors and Ford merge, the post-merger HHI becomes 1,954, so the HHI increases by 646 points. Under the 2023 DOJ/FTC Merger Guidelines, a market with HHI above 1,800 is highly concentrated, and an increase above 100 points is significant. This merger would therefore raise a structural presumption of competitive harm, subject to rebuttal evidence.
The Herfindahl-Hirschman Index (HHI) measures market concentration. It is commonly used in merger and antitrust analysis to estimate how competitive or concentrated a market is before and after a proposed merger.
To calculate HHI, square each firm's market share percentage and add the squared values together.
HHI Formula: HHI = Sum of (market share percentage)2
For this sample, the important update is that the current 2023 DOJ/FTC Merger Guidelines use the following concentration framework:
| HHI Range / Test | Meaning | Merger Analysis Use |
|---|---|---|
| Below 1,000 | Unconcentrated | Usually less concerning structurally |
| 1,000 to 1,800 | Moderately concentrated | Needs closer facts-and-evidence review |
| Above 1,800 | Highly concentrated | Important threshold for structural presumption |
| Post-merger HHI > 1,800 and HHI increase > 100 | Structural presumption threshold | Presumed to substantially lessen competition, subject to rebuttal evidence |
| Merged firm share > 30% and HHI increase > 100 | Additional structural presumption test | Also signals likely competitive concern |
The market has 10 firms with the following market shares:
| Firm | Market Share (%) | Share Squared |
|---|---|---|
| General Motors | 19% | 192 = 361 |
| Ford | 17% | 172 = 289 |
| Firm C | 15% | 152 = 225 |
| Firm D | 13% | 132 = 169 |
| Firm E | 10% | 102 = 100 |
| Firm F | 9% | 92 = 81 |
| Firm G | 7% | 72 = 49 |
| Firm H | 4% | 42 = 16 |
| Firm I | 3% | 32 = 9 |
| Firm J | 3% | 32 = 9 |
| Pre-Merger HHI | 1,308 | |
Pre-merger HHI = 361 + 289 + 225 + 169 + 100 + 81 + 49 + 16 + 9 + 9 = 1,308
Since 1,308 is between 1,000 and 1,800, this market is moderately concentrated under the current 2023 DOJ/FTC framework.
General Motors, with 19% market share, and Ford, with 17% market share, propose to merge. Their combined market share becomes:
19% + 17% = 36% combined market share
After the merger, the two firms become one combined firm. Recalculate HHI using the merged entity's 36% market share:
| Firm | Market Share (%) | Share Squared |
|---|---|---|
| GM + Ford (Merged) Merged | 36% | 362 = 1296 |
| Firm C | 15% | 152 = 225 |
| Firm D | 13% | 132 = 169 |
| Firm E | 10% | 102 = 100 |
| Firm F | 9% | 92 = 81 |
| Firm G | 7% | 72 = 49 |
| Firm H | 4% | 42 = 16 |
| Firm I | 3% | 32 = 9 |
| Firm J | 3% | 32 = 9 |
| Post-Merger HHI | 1,954 | |
Post-merger HHI = 1,296 + 225 + 169 + 100 + 81 + 49 + 16 + 9 + 9 = 1,954
The market moves from moderately concentrated (1,308) to highly concentrated (1,954).
Now calculate the change in HHI caused by the merger:
Post-Merger HHI - Pre-Merger HHI = 1,954 - 1,308 = 646
Apply the current structural presumption tests:
The post-merger HHI of 1,954 is above the 1,800 highly concentrated market threshold.
The HHI increase of 646 points is far above the 100-point significant increase threshold.
The merged GM/Ford firm would have 36% market share, above the 30% share threshold, with an HHI increase above 100.
Under the 2023 DOJ/FTC Merger Guidelines, this merger would likely raise serious antitrust concern. The post-merger HHI is above 1,800, the HHI increase is above 100 points, and the merged firm's market share is above 30%. These facts create a structural presumption that the merger may substantially lessen competition, although the final enforcement decision would depend on additional evidence.
HHI is an important starting point, but merger analysis does not end with the HHI calculation. Regulators also examine direct evidence about competition, customer substitution, pricing incentives, entry barriers, efficiencies, and whether the market definition accurately reflects how buyers actually behave.
This matters because market definition can be difficult. If the market is defined too narrowly, concentration may look higher than it really is. If the market is defined too broadly, the analysis may miss competitive harm. That is why HHI should be used with other economic evidence instead of treated as the only answer.
Regulators ask whether customers would switch to other products or suppliers if prices increased. This affects which firms should be counted in the market.
Agencies may examine pricing data, customer switching, lost sales, and business documents to see whether the merging firms compete closely.
If new firms can enter quickly or existing competitors can expand, a high HHI may be less concerning than it first appears.
Statskan can help you understand HHI analysis, antitrust case studies, market structure problems, graphs, formulas, and written economics explanations.
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