31E11100 - Microeconomics: Pricing, Lecture, 5.9.2022-19.10.2022
This course space end date is set to 19.10.2022 Search Courses: 31E11100
Reading assignment 5 (due 5.10. at 10:15)
Please read paragraphs (1)-(7) as well as ANNEX B – ECONOMIC MODELLING OF THE POTENTIAL EFFECTS OF THE TRANSACTION ON PRICES from the decision M.6905 INEOS/SOLVAY/JV of the European Commission taken in 2004. (Available at https://ec.europa.eu/competition/mergers/cases/decisions/m6905_8118_2.pdf)
Paragraphs (1)–(7) are on pages 12–13 of the pdf and Annex B covers pages 351–369 of the pdf.
Please answer the following:
In its decision, the Commission lists several limitations that BE model has. Please select two of these limitations and briefly discuss how these might affect the assessment of merger effects. For example, the BE model assumes that consumers have no switching costs but can instantaneously shift their demand to the supplier who offers the lowest price. However, if switching costs on the demand side in reality exists, do you think that this enables the merging parties to increase prices even more than what the BE model predicts, or do you rather think that switching costs constrain the post-merger market power of the merged entity? What would be the intuition or the mechanism on which your answer is based on?