ANSWER KEY:
ANTITRUST POLICY ON HORIZONTAL MERGERS
Quiz 7 Version A
(1)a (2)c. (3)b. (4)e. (5)b. (6)a. (7)a. (8)b. (9)b. (10)d.
Quiz 7 Version B
(1)b. (2)d. (3)d. (4)c. (5)c. (6)b. (7)a. (8)d. (9)a. (10)b.
Test 7 Version A
(1) [Types of mergers: 8 pts]
- Conglomerate merger for market extension.
- Horizontal merger.
- Conglomerate merger for product extension.
- Vertical merger.
(2) [Welfare tradeoffs of mergers: 36 pts]
- $4.
- 10 thousand.
- Marginal revenue curve has vertical intercept at $14, horizontal intercept at 7 thousand, and slope = 2/(1 thousand).
- $8.
- 6 thousand.
- 0.75.
- $32 thousand.
- $24 thousand.
- $8 thousand.
- $12 thousand.
- increase.
- $4 thousand.
(3) [Statutes: 10 pts]
- Hart-Scott-Rodino Act.
- Sherman Act Section 1.
- Sherman Act Section 2.
- Clayton Act Section 7.
- Celler-Kefauver Act.
(4) [HHI and merger guidelines: 18 pts]
- 1950.
- Moderately concentrated.
- 2250.
- Moderately concentrated.
- (ii) "raises significant competitive concerns."
- The postmerger HHI is greater than 1500 (but less than 2500) and the change in the HHI is greater than 100.
(5) [Conglomerate mergers: 18 pts]
- No.
- AC(50 tables) = $100 and AC(100 tables) = $120, so average cost curve for tables slopes up.
- Yes.
- AC(100 chairs) = $50 and AC(200 chairs) = $45, so average cost curve for chairs slopes down.
- Yes.
- The total cost of producing tables and chairs together is cheaper than the total cost of producing them separately. TC(50 tables,100 chairs) = $9,000, which is less than TC(50 tables) + TC(100 chairs) = $10,000. Similarly for TC (100 tables,100 chairs), for TC(50 tables,200 chairs), and for TC(100 tables,200 chairs).
Critical thinking [10 pts]
- As a government attorney opposing this merger, I would want to show that the postmerger HHI and the change in the HHI caused by the merger were both large. So I would propose a narrow definition of the market, including only office-supply superstores like Office Depot and Staples.
- As an attorney for Office Depot defending this merger, I would want to show that the postmerger HHI and the change in the HHI caused by the merger were both small. So I would propose a broad definition of the market, perhaps including any physical store that sells office supplies (including Walmart and Target) as well as online sellers of office supplies (including Amazon).
Test 7 Version B
(1) [Types of mergers: 8 pts]
- Vertical merger.
- Conglomerate merger for market extension.
- Horizontal merger.
- Conglomerate merger for product extension.
(2) [Welfare tradeoffs of mergers: 36 pts]
- $3.
- 14 thousand.
- Marginal revenue curve has vertical intercept at $10, horizontal intercept at 10 thousand, and slope = 1/(1 thousand).
- $6.
- 8 thousand.
- 2/3 = 0.667.
- $33 thousand.
- $24 thousand.
- $9 thousand.
- $8 thousand.
- decrease.
- $1 thousand.
(3) [Statutes: 10 pts]
- Clayton Act Section 7.
- Sherman Act Section 2.
- Celler-Kefauver Act.
- Hart-Scott-Rodino Act.
- Sherman Act Section 1.
(4) [HHI and merger guidelines: 18 pts]
- 1350.
- Unconcentrated.
- 1450.
- Unconcentrated.
- (iii) "unlikely to have adverse competitive effects."
- The postmerger HHI is lessthan 1500.
(5) [Conglomerate mergers: 18 pts]
- Yes.
- AC(50 tables) = $140 and AC(100 tables) = $120, so average cost curve for tables slopes down.
- Yes.
- AC(100 chairs) = $40 and AC(200 chairs) = $45, so average cost curve for chairs slopes up.
- No.
- The total cost of producing tables and chairs together is greater than the total cost of producing them separately. TC(50 tables,100 chairs) = $12,000, which is greater than TC(50 tables) + TC(100 chairs) = $11,000. Similarly for TC (100 tables,100 chairs), for TC(50 tables,200 chairs), and for
TC(100 tables,200 chairs).
Critical thinking [10 pts]
[end of answer key]