Monday, February 04, 2013

Merger

From the Economist:

Anheuser-Busch InBev, the world’s biggest beer maker, announced it would take full control of Mexico’s Grupo Modelo for more than $20 billion.
What does the DOJ consider when blocking a merger like this?

One measure is the Herfindahl Index.   AmosWeb.com defines the index as:

A measure of concentration of the production in an industry calculated as the sum of the squares of market shares for each firm. This is one method of summarizing the degree to which an industry is oligopolistic and the concentration of market control held by the largest firms in the industry. Two other measures of industry concentration are the four-firm concentration ratio and the eight-firm concentration ratio.

There's more to blocking a merger than just numbers, of course.  The DOJ should consider the elasticity of demand for the product and whether the firms are upstream and downstream monopolies.  I don't know the answer, but I wonder why there is a tendency for firms to concentrate my merging.  Is every market a "winner take all" market?

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