1. You are the manager in a market composed of five firms, each of which has a 20 percent market share. In addition, each firm has a strong financial position and is located within a 100-mile radius of its competitors.
a. Calculate the premerger Herfindahl-Hirschman index (HHI) for this market.
b. Suppose that any two of these firms merge. What is the post merger HHI?
c. Based only on the information contained in this question and on the U.S. Department of Justice Horizontal Merger Guidelines described in this chapter, do you think the Justice Department would attempt to block a merger between any two of the firms? Explain.
2. Is "fairness" the economic basis for government laws and regulations designed to remedy market failures? If so, why; If not, what is the economic basis?
3. Between 1972 and 1981, Texaco sold gasoline to independent Texaco retailers at "retail tank wagon prices" but granted substantial discounts to distributors Gull and Dompier. Gull resold the gas under its own name. Dompier resold the gas under the Texaco brand name to retail stations and entered the retail market directly. Since neither Gull nor Dompier had significant storage facitlities, both distributors picked up gas directly from the Texaco plant and delivered it to their retail outlets. As a result, the sales volume increased substantially at the retail stations purchasing gas from these distributors, while independent Texaco retailers suffered the corresponding sales decline. In 1976, independent Texaco retailers filed against Texaco. In 1990, the Surpreme Court of the United States found that Texaco had indeed violated antitrust law. Which law do you think Texaco was found guilty of violating?
4. A well-known conglomerate that manufacturers a multitude of noncompeting consumer product instituted a corporate wide intiative to encourage its managers of its many divisions to shar consumer demographic information. However, since the initiative was implemented, the CEO has noticed that less information is available than ever. Why