Question 1

The SSNIP test?

Accepted Answer

INCLUDE DIAGRAM small but significant no transitory increase in prices Used to define a market in an area using a hypothetical monopolist test by Used by competition agencies to help with their assessment of the market power of firms within a market You would initially identify all products that are close substitutes Select a few and suppose a hypothetical monopolist holds these stores, could it sustain a SSNIP of 5-10% If yes then stores are owned by a hypothetical monopoly if no then there must be competitive pressure so the market definition is wider include next closest substitute and repeat until SSNIP could be sustained Relevant market = smallest product group such that SSNIP profitable for a hypothetical monopolist

Question 2

The Herfindahl-Hirschman Index?

Accepted Answer

HHI is an indirect measure of market power and is calculated by finding the squared sum of the market share in the company it is preferred over the concentration ratio as it gives an indication of the spread of the market across different firms Pure monopoly = 1 in EU and 10000 in US Whereas Symmetric Oligopoly HHI = n(1/n)^2 = 1/n or 10000/n It is also used as a screen for unilateral effects by the US Department of Justice Give example that ends in Delta(HHI) = 2s2s3 A merger is unlikely to have adverse competitive effects Moderately concentrated Post HHI -1500-2500 D(HHI) \> 100 --\> potential competitive concern Highly concentrated - post HHI above 2500 D(HHI) 100-200: potential competitive concerns D(HHI) \>200 points presume market power enhanced

Question 3

Coordinated Effects?

Accepted Answer

prohibited under article 101: prohibit cartels (explicit collusion) Merger controls: prevents coordinated effects (increased likelihood of tacit collusion) A result of a potentially anticompetitive merger then leads to a substantial lessening of effective competition Why is coordinated effects bad a merger may increase the likelihood of tacit collusion tacit collusion is when other firms (usually price takers or smaller firms) usually follow the prices set by a larger more dominant firm normally Why would an agency want to stop this Example of it being used in the prohibition of the ASDA-Sainsbury merger Background case In which they created a framework for the likelihood of increased collusion They found increased likelihood of coordinated effected due to a merger in the online groceries market

Question 4

Gross Upward Pricing Pressure Index?

Accepted Answer

it is used to measure the size of the unilateral effect that may be a cause for concern in a merger GUPPI is an indicator that assess the incentive for firms to raise prices as a result of a merger an estimates the increase in i's price-cost ratio i.e. Lerner index due to the merger How it is calculated Used by deriving the difference between the Lerner index of a firm and the combined firms after the merger What each of the points means The advantage of GUPPI is that market definition is not important A disadvantage is that it does not take account of efficiencies that may be created The competition and Market Authority used in 2018-2019 to help assess whether the ASDA-Sainsburys merger would be welfare-enhancing or create potential inefficiency or be anticompetitive Relative price -used a basket of goods Price cost-ratio - used firm-level own-price elasticity of demand pre-merger Diversion ratio - used customer survey --\> national 100 supermarket survey if prices raised by 5-10% what would you do Problem was that GUPPI was used as a threshold indicator in this case to

Question 5

Vertical Restraints?

Accepted Answer

in a Supply chain their is usually have contracts to ensure the continuous supply of inputs to firms further down the chain These contracts will have clauses (vertical constraints) to affect the behaviour of those further down it this is because a firm decision at the start of the chain can have a causal effect on the profits of those further down it These clauses can have both pro and anti-competitive effects Examples include Linear tariffs Non-linear Resale Price Maintenance illegal, good for consumers but minimises prices but bad for the seller good in the US Exclusive territory eliminate intrabrand competition but can be anticompetitive unless firms invest more in quality service Exclusive dealing Interbrand competition eliminated Selective distribution Integration Article 101: Prohibits agreements between firms, unless welfare-enhancing typically not per-se illegal and a safe harbour if suppliers market share \<30% RPM is blacklisted (with few exceptions e.g. the book industry) Example where they are used 1979-2000 Impulse ice cream market Monopolies and mergers commission investigation the market for wrapped and impulse icecream retailers were independent shops need to preserve the cold chain from manufacturers to sales Outlet exclusivity --\> anticompetitive Freeze exclusivity --\> good and bad Remedy

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