The merger of companies with two of the top five brands of motor oil (Pennzoil and Quaker State) increased the price of one of the brands by roughly ________ (1, 5, 20, 50) percent. 

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Application 3 MERGER OF PENNZOIL AND QUAKER STATE APPLYING THE CONCEPTS # 3: How does a merger affect prices? 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 with- out 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 Penn- zoil 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. Related to Exercise 2.5. SOURCE: Based on Orley Ashenfelter and Daniel Hosken, "The Effects of Mergers on Consumer Prices: Evidence from Five Selected Case Studies," NBER Working Paper (2008).