Word: herfindahl
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Dates: during 1980-1989
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...judge what is "significant," the guidelines use the so-called Herfindahl index, a mathematical formula developed by the late Orris C. Herfindahl, a Washington economist. Traditionally, antitrust lawyers have relied on a rule-of-thumb approach. It was believed that the Justice Department would permit any mergers that did not concentrate 75% or more of a particular market in the hands of four or fewer companies. The Herfindahl index sets up a clearer, although more complex, set of guidelines...
Calculating the index sounds difficult, but is really quite easy. The formula is applied by adding together the sum of the mathematical squares of every company's market share in a particular industry or business. For example, if five companies each have 20% of a market, the Herfindahl index for that market would be 2,000. A merger of two of those companies, though, would automatically push the index to 2,800, and the 800-point increase would almost certainly provoke a challenge under the new guidelines. By contrast, the index for a market in which 20 companies each...
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