[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

If we plug in the 34 percent share that PepsiCo would have after acquiring 7-Up, the
PepsiCo–7-Up merger would raise the HHI to 2,766. The two proposed mergers
together would raise the HHI to 3,312.
After the FTC announced its opposition, PepsiCo immediately gave up on purchasing
7-Up. Coca-Cola pushed ahead with its plan to buy Dr. Pepper until a federal
judge ruled that it was a “stark, unvarnished” attempt to eliminate competition
that “totally [lacked] any apparent redeeming feature.”
The court case did bring a secret to the surface, however. The trial disclosed certain
Coca-Cola company memos written after PepsiCo’s offer for 7-Up had been made.
In the memos, Coca-Cola executives expressed fear that the FTC might allow the
PepsiCo merger, despite the agency’s guidelines. By announcing plans to buy
Dr. Pepper, Coca-Cola hoped that the FTC would step in and block both mergers,
as it did, thereby preventing PepsiCo from using a merger to catch up in size to
Coca-Cola. 1 ANTITRUST POLICIES ∂ 307
Table 13.2
HERFINDAHL-HIRSCHMAN INDEX
Level of HHI
Less than 1,000,
unconcentrated
Between 1,000 and 1,800,
moderately concentrated
Above 1,800, concentrated
Policy recommendation
Mergers allowed without
government challenge
Mergers challenged if they
raise the industry HHI by
more than 100 points
Mergers challenged if they
raise the industry HHI by
more than 50 points
1 See the following Wall Street Journal articles: Timothy K. Smith and Scott Kilman, “Coke to Acquire Dr. Pepper
Co. for $470 Million,” February 21, 1986, p. 2; Andy Pasztor and Timothy K. Smith, “FTC Opposes Purchase
Plans by Coke, Pepsi,” June 23, 1986, p. 2; Pasztor and Smith, “Coke Launched Dr. Pepper Bid to Scuttle Plans
by PepsiCo, Documents Indicate,” July 29, 1986, p. 3; Pasztor and Smith, “Coke’s Plan to Buy Dr. Pepper Is
Blocked by U.S. Judge, Pending Decision by FTC,” August 1, 1986, p. 3.