QUIZ 7 ANSWER KEY
Horizontal Mergers
Version A
I. Multiple choice [2 pts each: 14 pts total]
(1)a. (2)b. (3)c. (4)b. (5)b. (6)d. (7)d.
II. Problems
(1) [Types of mergers: 8 pts]
- conglomerate merger for market extension.
- horizontal merger.
- pure conglomerate merger.
- vertical merger.
(2) [Statutes: 15 pts]
- Sherman Act, Section 2.
- Clayton Act, Section 7.
- Celler-Kefauver Act.
- Hart-Scott-Rodino Act.
- Sherman Act, Section 1.
(3) [HHI and merger guidelines: 18 pts]
- 1968.
- highly concentrated under 1992 Guidelines, moderately concentrated under 2010 Guidelines.
- 2000.
- highly concentrated under 1992 Guidelines, moderately concentrated under 2010 Guidelines.
- NO.
- Mergers are unlikely to be challenged if they produce an increase in the HHI of less than 100 points. (See 2010 Horizontal Merger Guidelines, section 5.3.)
(4) [Welfare tradeoffs of mergers: 36 pts]
- $4.
- 10 thousand.
- $6.
- 6 thousand.
- 0.5.
- $16 thousand.
- $12 thousand.
- $4 thousand.
- $6 thousand.
- increase.
- $2 thousand.
III. Challenge question
- Company X does not enjoy economies of scale in producing refrigerators. If producing only refrigerators, average cost rises from $500 to $600 as the output of refrigerators increases from 100 to 200.
- Company X does enjoy economies of scale in producing washing machines. If producing only washing machines, average cost falls from $240 to $200 as the output of washing machines increases from 50 to 100.
- Company X does enjoy economies of scope. The cost of producing y refrigerators and z washing machines together is less than the sum of the costs of producing y refrigerators and z washing machines separately. For example, the cost of producing 100 refrigerators and 50 washing mcahines together is $58,000. By contrast, the cost of producing 100 refrigerators alone is $50,000 and the cost of producing 50 washing machines alone is $12,000, for a total cost of $62,000.
Version B
I. Multiple choice [2 pts each: 14 pts total]
(1)c. (2)a. (3)b. (4)d. (5)a. (6)b. (7)a.
II. Problems
(1) [Types of mergers: 8 pts]
- pure conglomerate merger.
- vertical merger.
- conglomerate merger for market extension.
- horizontal merger.
(2) [Statutes: 15 pts]
- Hart-Scott-Rodino Act.
- Sherman Act, Section 1.
- Sherman Act, Section 2.
- Clayton Act, Section 7.
- Celler-Kefauver Act.
(3) [HHI and merger guidelines: 18 pts]
- 1400.
- moderately concentrated under 1992 Guidelines, unconcentrated under 2010 Guidelines.
- 1600.
- moderately concentrated under both the 1992 Guidelines, and the 2010 Guidelines.
- YES.
- Mergers are likely to be challenged if they result in a moderately concentrated market and cause an increase in the HHI of more than 100 points. (See 2010 Horizontal Merger Guidelines, section 5.3.)
(4) [Welfare tradeoffs of mergers: 36 pts]
- $5.
- 9 thousand.
- $9.
- 5 thousand.
- 0.556.
- $28 thousand.
- $20 thousand.
- $8 thousand.
- $5 thousand.
- decrease.
- $3 thousand.
III. Challenge question
- Company X does enjoy economies of scale in producing refrigerators. If producing only refrigerators, average cost falls from $500 to $450 as the output of refrigerators increases from 100 to 200.
- Company X does not enjoy economies of scale in producing washing machines. If producing only washing machines, average cost rises from $200 to $250 as the output of washing machines increases from 50 to 100.
- Company X does not enjoy economies of scope. The cost of producing y refrigerators and z washing machines together is greater than the sum of the costs of producing y refrigerators and z washing machines separately. For example, the cost of producing 100 refrigerators and 50 washing mcahines together is $70,000. By contrast, the cost of producing 100 refrigerators alone is $50,000 and the cost of producing 50 washing machines alone is $10,000, for a total cost of $60,000.
[end of answer key]