Risk Arbitrage

Appendix B

The Department of Justice, in June, 1982, published a new set of guidelines describing the general principles and specific standards used by the Department in analyzing mergers (see Figure B.1). The Federal Trade Commission immediately embraced the guidelines as indicative of its policies as well. These guidelines represent the first changes since 1968 and go a long way to improve the predictability of the Department’s merger enforcement policy. There will, of course, still be many mergers that do not fit exactly into the specific guidelines that will require a judgement call by the arbitrageur. The flow chart gives a good schematic idea of the Department’s guidelines regarding anticompetitiveness in the three various types of mergers.

While policy on conglomerate and vertical mergers appears largely unchanged, as an aid to the interpretation of market concentration in horizontal mergers the Department has proposed use of the Herfindahl-Hirschman Index (HHI). The HHI is calculated by summing the squares of the individual market shares of all the firms in the relevant product and geographic markets.

Figure B.1 Department of Justice Merger Guidelines

Figure B.1 (Continued) NERA Flow Chart of Enforcement Policies

The index expands the analysis from the prior four-firm concentration ...