Horizontal Mergers

Question 1

What are the HHI’s for perfect competition and monopoly?

Answer 1

Perfect competition: (0)^2 = 0

Monopoly: (100)^2 = 10,000

Question 2

What is the main failure of the HHI?

Answer 2

The herfindahl approach would overestimate the change in H relative to the equilibrium appraoch, but indicate the sign of welfare change correctly

Question 3

What are the necessary conditions for a successful collusion?

Answer 3

• A collusive arrangement to restrict output so as to raise price
• Means to detect deviation from the collusive arrangement
• The ability to punish cheaters

Question 4

Which factor may enhance the probability of success of a collusion?

Answer 4

Increase in the concentration as a result of a horizontal merger

Question 5

What might be the following consequences of a merger?

Answer 5

The high price and hence high profitability - likely to attract new entry

Question 6

What might change the effect of a merger?

Answer 6

The existence and the height of barriers to entry

Question 7

Define the Merger Antitrust Framework

Answer 7

• Merger guidelines
• Market definition
• Market structure and concentration

Question 8

Describe the NEW approach to Merger Policy

Answer 8

Technical change - in some industries, technical change is so rapid that concerns which are grounded in static, price-based models (of oligopoly behaviour) may be irrelevant or inadequate in the highly dynamic context in which a merger is taking place

Question 9

What do we mean by irrelevancy?

Answer 9

R&D co-operation among competitors e.g. joint venture, may be beneficial to innovation without lessening product market competition

Question 10

What do we mean by inadequacy?

Answer 10

Merger and acquisitions that may lessen competition in innovation markets (or R&D markets) may not obviously lessen competition in the current product markets