Economics Discussion 8
10/17/2019 9:03:26 AM
Number Of Pages:
1 1.5 spaced (337 words)
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Type of Document:
online discussion question
In this discussion, you will combine the content-specific knowledge you have acquired in this course to develop a premerger prospectus for circulation among the members of a firm’s Board of Directors. They will review this document prior to its use in premerger notification filings, which may trigger an FTC investigation. If the FTC believes that a firm has violated the law or that a proposed merger may violate the law, the agency may attempt to obtain voluntary compliance by entering into a consent order with the company. A company that signs a consent order need not admit that it violated the law, but it must agree to stop the disputed practices outlined in an accompanying complaint or take certain steps to resolve the anticompetitive aspects of its proposed merger. On the other hand, if a consent agreement cannot be reached, the FTC may issue an administrative complaint and/or seek injunctive relief in the federal courts. Assume that the craft wine market is composed of only eight firms, with each of these having a 12.5 percent market share. One of these eight firms intends to merge with a competitor that produces fruit-infused wines that are often compared to its own boutique line in industry publications. The first firm’s economists have estimated that the cross elasticity of demand for its competitor’s product, in relation to its own, is 3. The competing firm controls substantial vineyards and orchards, while the first firm does not. Each firm is in a strong financial position and is located within a 100-mile radius of its competitors. Foreign firms do not compete in this specialty market. Assume that you are a managerial consultant hired to advise this craft winery as it develops a premerger messaging and communications campaign, which includes premerger filings with the FTC. Your task is to create a prospectus to be circulated among members of the Board of Directors in preparation for filing documents with the FTC announcing the planned merger. Evaluate the likelihood that the merger will be allowed to proceed based on the following: (1) Calculate the premerger and postmerger Herfindahl-Hirschman indexes (HHI) for this market. (2) Based only on your HHI calculations and on the Horizontal Merger Guidelines described in Module Eight, evaluate the likelihood that the Justice Department or the FTC would attempt to block a merger between these two firms. (3) Assess the effect of this move on the combined firm’s costs of production and how this might affect the firm’s competitive position. Tasks In preparation for filing documents with the FTC announcing the planned merger, you will create a prospectus to be circulated among the Board of Directors. Evaluate the likelihood that the merger will be allowed to proceed based on the following: Calculate the premerger and postmerger Herfindahl-Hirschman indexes (HHI) for this market. Based only on your answers HHI calculations and on the Horizontal Merger Guidelines evaluate the likelihood that the Justice Department or the FTC would attempt to block a merger between these two firms. Assess the effect of this move on the combined firm’s costs of production and how this might affect the firm’s competitive position.
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