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Socially Beneficial Mergers: A New Class of Concentration Indices

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  • Nejat Anbarci

    ()
    (Department of Economics, Florida International University)

  • Brett Katzman

    (Department of Economics and Finance, Kennesaw State University)

Abstract

The prominent Herfindahl-Hirschman index (HHI), yields a higher concentration level in response to any merger between firms, implying that any merger will decrease the social welfare. Although HHI is used by the Anti-trust Division of the U.S. Department of Justice (AD-DoJ), its merger implications are not fully embraced by the anti-trust authorities. We propose a class of concentration indices that is in line with the spirit of the AD-DoJ’s merger policies and consider different theoretical models which indicate that the AD-DoJ is justified in allowing mergers especially among smaller firms, as they counter the market power of dominant firms.

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File URL: http://casgroup.fiu.edu/pages/docs/2247/1275232270_05-04.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0504.

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Length: 25 pages
Date of creation: Mar 2005
Date of revision:
Handle: RePEc:fiu:wpaper:0504

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Keywords: Horizontal Mergers; Industry Concentration; the Anti-Trust Division; Hirfindahl-Hirschman Index (HHI); Dominant Firm(s);

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  1. Ugur Akgün, 2004. "Mergers With Supply Functions," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 535-546, December.
  2. Blackorby, Charles & Donaldson, David & Weymark, John A., 1982. "A normative approach to industrial-performance evaluation and concentration indices," European Economic Review, Elsevier, vol. 19(1), pages 89-121.
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