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At one time Mattel proposed acquiring Fisher-Price for $1.2 billion. At the time, Mattel was a major player in the toy industry with 11 percent of the market. Fisher-Price had 4 percent. The other two large firms were Tyco, with a 5 percent share, and Hasbro, with a 15 percent share. In the infant/preschool toy market, Mattel had an 8 percent share and Fisher-Price had a 27 percent share, the largest. The other two large firms were Hasbro, with a 25 percent share, and Rubbermaid, with a 12 percent share. a. What were the approximate Herfindahl and four-firm concentration ratios for these industries? (Assume all other firms in each industry had 1 percent of the market each.) Toy market The four-firm concentration ratio: The Herfindahl index: [ Infant/preschool toy market The four-firm concentration ratio: The Herfindahl index: b. If you were Mattel's economist, which industry definition would you suggest using in court if the merger was challenged by the government? Toy market O Infant/preschool toy market

At one time Mattel proposed acquiring Fisher-Price for $1.2 billion. At the time, Mattel was a major player in the toy industry with 11 percent of the market. Fisher-Price had 4 percent. The other two large firms were Tyco, with a 5 percent share, and Hasbro, with a 15 percent share. In the infant/preschool toy market, Mattel had an 8 percent share and Fisher-Price had a 27 percent share, the largest. The other two large firms were Hasbro, with a 25 percent share, and Rubbermaid, with a 12 percent share. a. What were the approximate Herfindahl and four-firm concentration ratios for these industries? (Assume all other firms in each industry had 1 percent of the market each.) Toy market The four-firm concentration ratio: The Herfindahl index: [ Infant/preschool toy market The four-firm concentration ratio: The Herfindahl index: b. If you were Mattel's economist, which industry definition would you suggest using in court if the merger was challenged by the government? Toy market O Infant/preschool toy market

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
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At one time Mattel proposed acquiring Fisher-Price for $1.2 billion. At the time, Mattel was a major player in the toy industry with 11 percent of the market. Fisher-Price had 4 percent. The other two large firms were Tyco, with a 5 percent share, and Hasbro, with a 15 percent share. In the infant/preschool toy market, Mattel had an 8 percent share and Fisher-Price had a 27 percent share, the largest. The other two large firms were Hasbro, with a 25 percent share, and Rubbermaid, with a 12 percent share. a. What were the approximate Herfindahl and four-firm concentration ratios for these industries? (Assume all other firms in each industry had 1 percent of the market each.) Toy market The four-firm concentration ratio: The Herfindahl index: Infant/preschool toy market. The four-firm concentration ratio: The Herfindahl index: b. If you were Mattel's economist, which industry definition would you suggest using in court if the merger was challenged by the government? Toy market O Infant/preschool toy market
Transcribed Image Text:At one time Mattel proposed acquiring Fisher-Price for $1.2 billion. At the time, Mattel was a major player in the toy industry with 11 percent of the market. Fisher-Price had 4 percent. The other two large firms were Tyco, with a 5 percent share, and Hasbro, with a 15 percent share. In the infant/preschool toy market, Mattel had an 8 percent share and Fisher-Price had a 27 percent share, the largest. The other two large firms were Hasbro, with a 25 percent share, and Rubbermaid, with a 12 percent share. a. What were the approximate Herfindahl and four-firm concentration ratios for these industries? (Assume all other firms in each industry had 1 percent of the market each.) Toy market The four-firm concentration ratio: The Herfindahl index: Infant/preschool toy market. The four-firm concentration ratio: The Herfindahl index: b. If you were Mattel's economist, which industry definition would you suggest using in court if the merger was challenged by the government? Toy market O Infant/preschool toy market
c. Give an argument why the merger might decrease competition. The increased market share allows Mattel to limit output and increase prices or create significant barriers to entry by controlling distribution. O Mattel will have a harder time competing with the remaining firms in the market Barriers to entry would rise since Mattel would be able to extract an entry fee from any new firms in the market. The merger will not reduce competition. d. Give an argument why the merger might increase competition. A combined Mattel and Fisher-Price (15 percent market share) might be in a better financial position to compete against Hasbro. O By buying Its supplier, Mattel will be able to lower production costs and therefore lower product prices. OA larger Mattel will be less likely to collude with the remaining firms in the market. Mergers do not increase competition.
Transcribed Image Text:c. Give an argument why the merger might decrease competition. The increased market share allows Mattel to limit output and increase prices or create significant barriers to entry by controlling distribution. O Mattel will have a harder time competing with the remaining firms in the market Barriers to entry would rise since Mattel would be able to extract an entry fee from any new firms in the market. The merger will not reduce competition. d. Give an argument why the merger might increase competition. A combined Mattel and Fisher-Price (15 percent market share) might be in a better financial position to compete against Hasbro. O By buying Its supplier, Mattel will be able to lower production costs and therefore lower product prices. OA larger Mattel will be less likely to collude with the remaining firms in the market. Mergers do not increase competition.
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