**SPOILER** Question 27, Afternoon Portion, BSAS Mock Exam The question has to do with whether there will be an antitrust challenge due to a merger. The answer is that there is a “possible challenge” not a likely one because the post-HHI merger increased 400 points, from 1680 to 2080. On the chart on page 154, book 3, Schweser, it says that if the post-merger HHI is greater than 1,800, and the change in pre and post-merger HHI is more than 50 points, an antitrust challenge is virtually certain. Why is it that choice B, “challenge,” not choice C, “possible challenge.” It seems petty, but they could ask this on the exam.
isn’t the original criterion saying If pre-hhi between 1000 and 1800 and post hhi - pre hhi >= 100 --> possible if pre-hhi > 1800 and post-hhi - pre hhi >= 50 then CERTAIN. so since pre-hhi was 1680 < 1800 - it is possibly certain, and the answer is correct as given.
it changes from 1680 to 2080 so HHI changed by 400 hence it is certain
CP, Are you sure you have to compare it to pre-hhi? I thought you measure using post-HHI? Don’t have the book, so cannot confirm.
I think BSAS is wrong
cfaboston28 Wrote: ------------------------------------------------------- > it changes from 1680 to 2080 so HHI changed by 400 > hence it is certain No, look at the criteria again. If pre < 1800 (TRUE) and change > 100 (TRUE) then possible if pre > 1800 (FALSE) and change > 50 (TRUE) then certain it fails the pre > 1800 criteria for being certain.
I think if post-HHI (NOT pre-HHI!) > 1800 and chg > 50, it is a certain challenge.
need to read CFAI test on this. Schweser hasn’t shown any example on this. I second mp2438.
my bad… yes post-merger hhi is what it says according to Schweser
Here what schweser says:- Post Merger HHI Change in Pre and Post Antitrust action Less than 1000 Any amount no action between 1000-1800 100 or more Possible antitrust challenge more than 1800 50 or more virtually certain In this problem, it changed 400 from moderately to concentrated industry, it should be virtually certain. Is that what you are saying cpk?
Well the BSAS problem I referenced had two choices: virtually certain and likely or something like that, and the answer was likely and not certain. I don’t know anymore who’s right.
my original thought was the pre-merger HHI was the source for comparison and Post Merger HHI - Pre Merger HHI was the amount of difference. so since pre-merger was 1680 < 1800 - and post - pre was > 100 - I said possibly certain. But schweser seems to be saying Post Merger HHI = 2080 > 1800 and diff > 50 so it is VIRTUALLY CERTAIN. This was the point of discussion all along - and because of my bad reading skills - I was wrong.
Well either Schweser is wrong or BSAS is wrong, because BSAS says it’s “likely,” not “virtually certain.” Given their track record, what do you think cpk? What does CFAI say?
Page 261, Volume 3, CFAI Corporate Finance Book: If the post-merger HHI is more than 1800, and there’s a change of 50 or more, challenge, as opposed to “possible challenge.”