In 1998, Pennzoil Motor Oils purchased Quaker State Motor Oils in an acquisition valued at $1 billion.
Question:
In 1998, Pennzoil Motor Oils purchased Quaker State Motor Oils in an acquisition valued at $1 billion. The merger brought together two of the five brands of premium motor oil, with a combined market share of 38% (29% for Pennzoil and 9% for Quaker State). The antitrust agencies approved the merger without any modifications. A recent study of the merger concludes that the new company increased the price of the Quaker State products by roughly 5%, but did not change the price of Pennzoil products. The market share of Pennzoil products increased, while the market shares of Quaker State products decreased.
The study also examines the price effects of four other mergers. In three of four cases, the merger increased prices, with price hikes between 3 and 7 percent. The modest price effects might be surprising to (1) people who expect relatively large positive price effects as firms exploit their greater market power and (2) people who expect negative price effects as the firms become more efficient.
Question.
How does a merger affect prices?
Step by Step Answer:
Microeconomics Principles Applications And Tools
ISBN: 9780134078878
9th Edition
Authors: Arthur O'Sullivan, Steven Sheffrin, Stephen Perez