In 2005, Federated Department Stores, Inc. proposed to acquire The May Department Stores Co., thereby combining the two largest chains in the United States of so-called “traditional” or “conventional” department stores. Conventional department stores typically anchor enclosed shopping malls, feature products in the mid-range of price and quality, and sell a wide range of products. The proposed transaction would create high levels of concentration among conventional department stores in many metropolitan areas of the United States, and the merged firm would become the only conventional department store at certain of the 1,200 malls in the United States.
A. How is the cross-elasticity concept used to empirically define economic markets?
B. Explain how the government’s finding that conventional department stores compete against specialty stores led them to approve the proposed merger.