Concentration-Based Inference for Evaluating Horizontal Mergers

Antitrust authorities routinely rely on concentration measures to evaluate the potential negative impacts of mergers. Using a first-order approximation argument with logit and CES demand, I show that the welfare effect of a merger on consumer surplus is proportional to the change in the Herfindahl-Hirschman index, where the proportionality coefficient depends on price responsiveness parameter, market size, and the distribution of merging firms' shares. This paper elucidates how HHI measures inform the market power effects of mergers.