Regulation and Antitrust Policy (Econ 180)
Drake University, Spring 2011
William M. Boal

Course page: www.drake.edu/cbpa/econ/boal/180
Blackboard: bb.drake.edu
Email: william.boal@drake.edu

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]

  1. conglomerate merger for market extension.
  2. horizontal merger.
  3. pure conglomerate merger.
  4. vertical merger.

(2) [Statutes: 15 pts]

  1. Sherman Act, Section 2.
  2. Clayton Act, Section 7.
  3. Celler-Kefauver Act.
  4. Hart-Scott-Rodino Act.
  5. Sherman Act, Section 1.

(3) [HHI and merger guidelines: 18 pts]

  1. 1968.
  2. highly concentrated under 1992 Guidelines, moderately concentrated under 2010 Guidelines.
  3. 2000.
  4. highly concentrated under 1992 Guidelines, moderately concentrated under 2010 Guidelines.
  5. NO.
  6. 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]

  1. $4.
  2. 10 thousand.
  3. $6.
  4. 6 thousand.
  5. 0.5.
  6. $16 thousand.
  7. $12 thousand.
  8. $4 thousand.
  9. $6 thousand.
  10. increase.
  11. $2 thousand.

III. Challenge question

  1. 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.
  2. 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.
  3. 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]

  1. pure conglomerate merger.
  2. vertical merger.
  3. conglomerate merger for market extension.
  4. horizontal merger.

(2) [Statutes: 15 pts]

  1. Hart-Scott-Rodino Act.
  2. Sherman Act, Section 1.
  3. Sherman Act, Section 2.
  4. Clayton Act, Section 7.
  5. Celler-Kefauver Act.

(3) [HHI and merger guidelines: 18 pts]

  1. 1400.
  2. moderately concentrated under 1992 Guidelines, unconcentrated under 2010 Guidelines.
  3. 1600.
  4. moderately concentrated under both the 1992 Guidelines, and the 2010 Guidelines.
  5. YES.
  6. 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]

  1. $5.
  2. 9 thousand.
  3. $9.
  4. 5 thousand.
  5. 0.556.
  6. $28 thousand.
  7. $20 thousand.
  8. $8 thousand.
  9. $5 thousand.
  10. decrease.
  11. $3 thousand.

III. Challenge question

  1. 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.
  2. 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.
  3. 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]