Authors libby rittenberg 848
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in 1950, over 100 no longer exist. New firms, including such giants as
Walmart, Microsoft, and Federal Express, have taken their place. The
critics argue that the emergence of these new firms is evidence of the
dynamism and competitive nature of the modern corporate scene.
There is no evidence to suggest, for example, that the degree of
concentration across all industries has increased over the past 25 years.
Global competition and the use of the internet as a marketing tool have
increased the competitiveness of a wide range of industries. Moreover,
critics of antitrust policy argue that it is not necessary that an industry be
perfectly competitive to achieve the benefits of competition. It need merely
be contestable—open to entry by potential rivals. A large firm may be able
to prevent small firms from competing, but other equally large firms may
enter the industry in pursuit of the high profits earned by the initial large
firm. For example, Time Warner, primarily a competitor in the publishing
and entertainment industries, has in recent years become a main
competitor in the cable television market.
Currently, the Justice Department follows guidelines based on the
Herfindahl–Hirschman Index (HHI). The HHI, introduced in an earlier
chapter, is calculated by summing the squared percentage market shares
of all firms in an industry, where the percentages are expressed as whole
numbers (for example 30% would be expressed as 30). The higher the
value of the index, the greater the degree of concentration. Possible values
of the index range from 0 in the case of perfect competition to 10,000
(=1002 ) in the case of a monopoly.
Current guidelines stipulate that any industry with an HHI under 1,000 is
unconcentrated. Except in unusual circumstances, mergers of firms with a
postmerger index under 1,000 will not be challenged. The Justice
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
848
