1.5 Concentration and Market Shares

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 Market concentration is a function of the number of firms in a market and their respective market 

shares. As an aid to the interpretation of market data, the Agency will use the Herfindahl-Hirschman Index 

("HHI") of market concentration. The HHI is calculated by summing the squares of the individual market 

shares of all the participants.(17) Unlike the four-firm concentration ratio, the HHI reflects both the 

distribution of the market shares of the top four firms and the composition of the market outside the top 

four firms. It also gives proportionately greater weight to the market shares of the larger firms, in accord 

with their relative importance in competitive interactions.

 The Agency divides the spectrum of market concentration as measured by the HHI into three regions 

that can be broadly characterized as unconcentrated (HHI below 1000), moderately concentrated (HHI 

between 1000 and 1800), and highly concentrated (HHI above 1800). Although the resulting regions 

provide a useful framework for merger analysis, the numerical divisions suggest greater precision than is 

possible with the available economic tools and information. Other things being equal, cases falling just 

above and just below a threshold present comparable competitive issues.

1.51 General Standards

 In evaluating horizontal mergers, the Agency will consider both the post-merger market concentration 

and the increase in concentration resulting from the merger.(18) Market concentration is a useful indicator 

of the likely potential competitive effect of a merger. The general standards for horizontal mergers are as 

follows:

a) Post-Merger HHI Below 1000. The Agency regards markets in this region to be unconcentrated. 

Mergers resulting in unconcentrated markets are unlikely to have adverse competitive effects and 

ordinarily require no further analysis.

b) Post-Merger HHI Between 1000 and 1800. The Agency regards markets in this region to be moderately 

concentrated. Mergers producing an increase in the HHI of less than 100 points in moderately 

concentrated markets post-merger are unlikely to have adverse competitive consequences and ordinarily 

require no further analysis. Mergers producing an increase in the HHI of more than 100 points in 

moderately concentrated markets post-merger potentially raise significant competitive concerns depending 

on the factors set forth in Sections 2-5 of the Guidelines.

c) Post-Merger HHI Above 1800. The Agency regards markets in this region to be highly concentrated. 

Mergers producing an increase in the HHI of less than 50 points, even in highly concentrated markets 

post-merger, are unlikely to have adverse competitive consequences and ordinarily require no further 

analysis. Mergers producing an increase in the HHI of more than 50 points in highly concentrated markets 

post-merger potentially raise significant competitive concerns, depending on the factors set forth in 

Sections 2-5 of the Guidelines. Where the post-merger HHI exceeds 1800, it will be presumed that 

mergers producing an increase in the HHI of more than 100 points are likely to create or enhance market 

power or facilitate its exercise. The presumption may be overcome by a showing that factors set forth in 

Sections 2-5 of the Guidelines make itunlikely that the merger will create or enhance market power or 

facilitate its exercise, in light of market concentration and market shares.

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1.52 Factors Affecting the Significance of Market Shares and Concentration

The post-merger level of market concentration and the change in concentration resulting from a merger 

affect the degree to which a merger raises competitive concerns. However, in some situations, market 

share and market concentration data may either understate or overstate the likely future competitive 

significance of a firm or firms in the market or the impact of a merger. The following are examples of such 

situations.

1.521 Changing Market Conditions

Market concentration and market share data of necessity are based on historical evidence. However, recent 

or ongoing changes in the market may indicate that the current market share of a particular firm either 

understates or overstates the firm's future competitive significance. For example, if a new technology that 

is important to long-term competitive viability is available to other firms in the market, but is not available 

to a particular firm, the Agency may conclude that the historical market share of that firm overstates its 

future competitive significance. The Agency will consider reasonably predictable effects of recent or 

ongoing changes in market conditions in interpreting market concentration and market share data.

1.522 Degree of Difference Between the Products and Locations in the Market and 

Substitutes Outside the Market

All else equal, the magnitude of potential competitive harm from a merger is greater if a hypothetical 

monopolist would raise price within the relevant market by substantially more than a "small but significant 

and nontransitory" amount. This may occur when the demand substitutes outside the relevant market, as a 

group, are not close substitutes for the products and locations within the relevant market. There thus may 

be a wide gap in the chain of demand substitutes at the edge of the product and geographic market. Under 

such circumstances, more market power is at stake in the relevant market than in a market in which a 

hypothetical monopolist would raise price by exactly five percent.

17 For example, a market consisting of four firms with market shares of 30 percent, 30 percent, 20 percent 

and 20 percent has an HHI of 2600 (302

 + 302 + 202 + 202 = 2600). The HHI ranges from l0,000 (in the 

case of a pure monopoly) to a number approaching zero (in the case of an atomistic market). Although it is 

desirable to include all firms in the calculation, lack of information about small firms is not critical 

because such firms do not affect the HHI significantly.

18 The increase in concentration as measured by the HHI can be calculated independently of the overall 

market concentration by doubling the product of the market shares of the merging firms. For example, the 

merger of firms with shares of 5 percent and 10 percent of the market would increase the HHI by l00 (5 x 

l0 x 2 = l00). The explanation for this technique is as follows: In calculating the HHI before the merger, 

the market shares of the merging firms are squared individually: (a)2

 + (b)2. After the merger, the sum of 

those shares would be squared: (a + b)2 , which equals a2 + 2ab + b2 . The increase in the HHI therefore is 

represented by 2ab. 

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Horizontal

Merger

Guidelines

U.S. Department of Justice and the Federal Trade Commission

Issued: April 2, 1992

Revised: April 8, 1997

Note: Section 4 of these Guidelines, relating to Efficiencies, appears 

as it was issued in revised form by the Department of Justice and the 

Federal Trade Commission on April 8, 1997; and the footnotes in 

Section 5 of the Guidelines have been renumbered accordingly. The 

remaining portions of the Guidelines were unchanged in 1997, and 

appear as they were issued on April 2, 1992. 

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