Chapter- Imperfect competition and strategic behaviour.

** Please add references if you use any.

1.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 at 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.)

b.If you were Mattel's economist, which industry would you suggest using in court if the merger was challenged by the government?

c.Give an argument why the merger might decrease competition.

d.Give an argument why the merger might increase competition.