Heinz Analysis

Topics: Microeconomics, Supply and demand, Marketing Pages: 4 (1477 words) Published: February 7, 2008
The United States government is quite concerned with the issue of maintaining competitiveness in any major industry, particularly to protect the consumer in the long run. When a merger is proposed in an industry, the government must carefully evaluate many parameters to determine long run efficiencies for the firms involved and the consumer. Beyond appraising firm concentration in the industry, the long run result to the consumer and competitiveness of the industry must be weighed into the decision. The most important aspect to remember is that the government likes competition. In the long run, if a merger will reduce competition in an industry, or generate less surplus value to the consumer, then the antitrust decision should block the event from occurring. To reasonably analyze the impact of the merger, I will inspect the existing baby food market as presented in the case, then estimate the long run effect of higher concentration in the industry to all impacted firms and the consumer.

As the case summary data presents, the existing baby food market is highly concentrated. Three firms (Gerber, Heinz, and Beech-Nut) control over 97% of the industry, with market concentrations of 65%, 17.4%, and 15.45% respectively. The reported pre-merger HHI score for the baby food industry is 4775, generally indicative of a highly concentrated industry. The increase in the HHI score after the merger is estimated to be 510 points. The increase in the HHI score is well above the baseline parameter that the government uses as if a merger will move an industry towards greater anticompetitive levels. Based on the score alone, it would seem that the merger would in fact cause the industry to become more anticompetitive. However, several variables must be evaluated beyond a numerical parameter to truly gauge the long run effect of the merger on both the involved firms in the industry and the consumer. Beyond the HHI score, I will evaluate factors of the specific market definition,...
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