Suppose the fast-growing energy and nutrition bar industry is composed of nine firms with the following market
Question:
Suppose the fast-growing energy and nutrition bar industry is composed of nine firms with the following market shares: 40 25 10 7 5 5 5 2 1
a. Calculate the 4-firm concentration ratio and the Herfindahl Index for this industry.
b. What type of market structure characterizes this industry? Base your answer on the calculated measures as well as on the characteristics of the industry, including the type of product differentiation involved.
c. Suppose the second largest firm wants to challenge the leading firm.
(1) It wants to merge with one of the firms with five percent market share. How will the Department of Justice react to the proposed deal?
(2) The firm is going to argue that the definition of the market should include the other major segments of the food bar industry, which are breakfast bars and granola bars. Does it have a valid point? Base your answer on the conditions necessary to determine if a product is a competitor.
(3) The firm produces data that shows that the cross-price elasticity between energy bars and granola bars is +0.60. How would that help the firm's argument?
(4) In addition to acquiring one the energy bar companies, the firm also wants to acquire a company that makes potato chips. That company has a good share of the potato market, but it is a mature area that doesn't grow very much. How does this fit into the idea of internal capital markets? Use the Boston Consulting Group's framework in addressing this issue.
(5) What is a possible managerial reason for the second proposed merger?
d. What is one reason why the firm shouldn't diversify in this case?
e. How might the managerial reasons for diversification lead to the principle-agent problem in this case?
Managerial economics applications strategy and tactics
ISBN: 978-1439079232
12th Edition
Authors: James r. mcguigan, R. Charles Moyer, frederick h. deb harris