Questions \#22 to \#26 are based on the analysis of a potential merger, described below: Algoma Steel Inc. and Stelco Steel Inc. Merger? Suppose you work at the Bureau and your task is to assess a proposed merger between Algoma Steel Inc. and Stelco Steel Inc. For simplicity, these are the only two firms in Canada. The cost of this merger is that the two firms will become one joint firm, or the duopolists become the monopolist. This is likely to limit consumer choices and the equilibrium price is likely to rise. However, this merger is likely to increase economies of scale, or production cost will fall. From existing studies you know the following information, and P is the price per ton of steel and Q is the number of tons of steel. Demand for steel: P=1,800Q Marginal revenue: MR=1,8002Q Supply of steel: MC =ATC=600, identical across the two firms. Case \#1: Before Merger - Cournot duopoly - the government does not intervene The total surplus (TS), defined as the sum of consumer surplus and producer surplus, is equal to a. $540,000 b. $360,000 c. $640,000 d. $720,000 Case \#2: Reject the merger If Algoma Inc. and Stelco Inc. were to merge, they can cut marginal cost. They can cut costs because they can share technology know-how, purchase iron ore in bulk to bargain for discounts, etc. You estimate that the MC = ATC per ton will fall from $600 to $500. The firms will benefit from this merger because their joint profit rises by The TS is equal to You should reject this proposed merger. a. $102,500;$550,750 b. $102,500;$633,750 c. $160,800;$705,000 d. $160,800;$325,500 Case \#3: Approve the merger Suppose the firms send you more cost information and you revise the MC = ATC per ton from $500 to $400. The TS is equal to and you decide to approve the merger. a. $825,000 b. $735,000 c. $395,000 d. $685,000 Case \#4: Approve merger because MC =ATC=$400 but regulate price to keep constant CS Suppose you keep CS constant at the level you have found under Case \#1, before the merger. The new TS is equal to a. $600,000 b. $900,000 c. $500,000 d. $800,000 Case \#5: Approve merger because MC =ATC=$400 but regulate price to keep almost constant PS Because the newly merged firm has more market power, you want to regulate this new monopolist. Suppose you want the new PS to be approximately equal to the PS under Case \#1, before the merger. You solve for this quantity and for convenience, you truncate the quantity into an integer. Truncation means that if Q=100.2 or Q =100.8, you set Q=100. The new TS is equal to a. $625,448 b. $1,022,755 c. $396,888 d. $938,528 In Canada, the industry that has seen the most mergers, measured in the monetary values involved, is Mergers in the technology industry are likely to involve firms, with the size of the firms measured in monetary values. Between 1985 and 2019,65,000 mergers took place in Canada and the Competition Bureau investigated of them. a. Materials; small; a small percentage b. Energy and power, large; around 50% c. Materials; small; around 50% d. Energy and power; small; a small percentage Which of the following is CORRECT about the merger reviews in Canada? a. The Bureau is likely to consider two products to be in the same market if the cross-price elasticity of these two products is positive. b. The Bureau only reviews mergers that involve a substantial amount of money, such as acquisitions that are around $10 million, but such mergers are likely to be approved if entry barriers are scant. c. The Bureau also considers whether approving a merger will increase the likelihood of price-fixing, which is the so-called unilateral price effect. d. All of the answers above are correct. Focus exclusively on our "At-Home Readings": Which of the following is CORRECT? a. From the Cenovus and Husky merger, cost savings in the amount of $200 million are expected to arise from sharing technical expertise and $600 million from better use of capital. These savings mean that the merged company is more likely to create new jobs within the company. b. From the Tim Hortons and Burger King merger, the cost savings mainly came from massive job losses in Canada but this merger was necessary as Tim Hortons was close to bankruptcy in the Canadian market. c. Tim Hortons benefited from the merger because when it expanded into various states in the US, it adopted Burger King's approach in India. Burger King ensured a partnership with firms that are familiar with the Indian markets and hence Tim Hortons partnered with firms that operated multiple gas stations and convenience stores in various US states. d. None of the answers above is correct. Questions #30 to #33 are related to the proposed merger between Air Canada and Air Transat. Focus exclusively on our "At-Home Readings": Air Canada and Transat AT Inc. (Air Transat) proposed to merge and the Competition Bureau (Bureau) subsequently conducted its investigation. Which of the following is CORRECT about this investigation? a. The Bureau did not conduct any efficiency analysis that may arise from this proposed merger. b. The Bureau found that the merger is likely to lead to a monopoly in 22 non-stop routes to-and-from Canada, Europe and various locations because Air Canada and Air Transat are the only two carriers. Substantial lessening in competition is also likely in 61 other routes. c. The Bureau found that substantial entry barriers exist in the affected routes, such as access to airport facilities in Canada and various European locations, as well as the ability of the potential new entrant t secure hotel offerings in Air Transat's sun destinations. d. All of the answers above are correct. Which of the following is CORRECT about this investigation? a. The Bureau concluded that Air Transat was facing financial failure and hence the merger was essentia for its survival prior to February 2020 (COVID-19). b. The Bureau concluded that if Air Canada were to merge with Air Transat, the merged firm, together witl its transatlantic joint ventures (A++ venture), will likely operate more than 90% of the flight capacity between Canada and Europe. c. The Bureau found that the proposed merger is unlikely to substantially lessen competition in the domestic, within-Canada, flight market. d. All of the answers above are correct. The Canadian federal government approved the proposed merger in spite of the concerns expressed by the Bureau. Which of the following is CORRECT? a. The Transport Minister approved the merger without requiring a divesture remedy. b. The federal government ensured that the Air Transat brand will remain and its headquarter and all aircraft maintenance of the merged airline to remain in Quebec. c. WestJet, Flair and Sunwing have expressed their opposition to this merger because they would be competing against a much more powerful rival. d. All of the answers above are correct. The European Commission (EC) expressed concerns over this proposed merger because it could substantially lessen competition in 33 origin-and-destination (OAD) pairs between Canada and the European Economic Area (EEA). Which of the following is CORRECT? a. In the 33 OAD pairs, Air Canada and Air Transat have been engaged in head-to-head competition and the EEA carriers have been competing in a small subset of these routes. b. The EC found that WestJet is likely to exert much more competition pressure on the 33 OAD pairs but it may take WestJet at least five years to accomplish this goal. c. The EC has insufficiently considered the challenges COVID-19 has imposed on the air travel industry because after the termination of this merger, Air Transat was unable to secure any short-term or longterm financing from equity firms and from the Canadian government. d. All of the answers above are correct. Questions \#22 to \#26 are based on the analysis of a potential merger, described below: Algoma Steel Inc. and Stelco Steel Inc. Merger? Suppose you work at the Bureau and your task is to assess a proposed merger between Algoma Steel Inc. and Stelco Steel Inc. For simplicity, these are the only two firms in Canada. The cost of this merger is that the two firms will become one joint firm, or the duopolists become the monopolist. This is likely to limit consumer choices and the equilibrium price is likely to rise. However, this merger is likely to increase economies of scale, or production cost will fall. From existing studies you know the following information, and P is the price per ton of steel and Q is the number of tons of steel. Demand for steel: P=1,800Q Marginal revenue: MR=1,8002Q Supply of steel: MC =ATC=600, identical across the two firms. Case \#1: Before Merger - Cournot duopoly - the government does not intervene The total surplus (TS), defined as the sum of consumer surplus and producer surplus, is equal to a. $540,000 b. $360,000 c. $640,000 d. $720,000 Case \#2: Reject the merger If Algoma Inc. and Stelco Inc. were to merge, they can cut marginal cost. They can cut costs because they can share technology know-how, purchase iron ore in bulk to bargain for discounts, etc. You estimate that the MC = ATC per ton will fall from $600 to $500. The firms will benefit from this merger because their joint profit rises by The TS is equal to You should reject this proposed merger. a. $102,500;$550,750 b. $102,500;$633,750 c. $160,800;$705,000 d. $160,800;$325,500 Case \#3: Approve the merger Suppose the firms send you more cost information and you revise the MC = ATC per ton from $500 to $400. The TS is equal to and you decide to approve the merger. a. $825,000 b. $735,000 c. $395,000 d. $685,000 Case \#4: Approve merger because MC =ATC=$400 but regulate price to keep constant CS Suppose you keep CS constant at the level you have found under Case \#1, before the merger. The new TS is equal to a. $600,000 b. $900,000 c. $500,000 d. $800,000 Case \#5: Approve merger because MC =ATC=$400 but regulate price to keep almost constant PS Because the newly merged firm has more market power, you want to regulate this new monopolist. Suppose you want the new PS to be approximately equal to the PS under Case \#1, before the merger. You solve for this quantity and for convenience, you truncate the quantity into an integer. Truncation means that if Q=100.2 or Q =100.8, you set Q=100. The new TS is equal to a. $625,448 b. $1,022,755 c. $396,888 d. $938,528 In Canada, the industry that has seen the most mergers, measured in the monetary values involved, is Mergers in the technology industry are likely to involve firms, with the size of the firms measured in monetary values. Between 1985 and 2019,65,000 mergers took place in Canada and the Competition Bureau investigated of them. a. Materials; small; a small percentage b. Energy and power, large; around 50% c. Materials; small; around 50% d. Energy and power; small; a small percentage Which of the following is CORRECT about the merger reviews in Canada? a. The Bureau is likely to consider two products to be in the same market if the cross-price elasticity of these two products is positive. b. The Bureau only reviews mergers that involve a substantial amount of money, such as acquisitions that are around $10 million, but such mergers are likely to be approved if entry barriers are scant. c. The Bureau also considers whether approving a merger will increase the likelihood of price-fixing, which is the so-called unilateral price effect. d. All of the answers above are correct. Focus exclusively on our "At-Home Readings": Which of the following is CORRECT? a. From the Cenovus and Husky merger, cost savings in the amount of $200 million are expected to arise from sharing technical expertise and $600 million from better use of capital. These savings mean that the merged company is more likely to create new jobs within the company. b. From the Tim Hortons and Burger King merger, the cost savings mainly came from massive job losses in Canada but this merger was necessary as Tim Hortons was close to bankruptcy in the Canadian market. c. Tim Hortons benefited from the merger because when it expanded into various states in the US, it adopted Burger King's approach in India. Burger King ensured a partnership with firms that are familiar with the Indian markets and hence Tim Hortons partnered with firms that operated multiple gas stations and convenience stores in various US states. d. None of the answers above is correct. Questions #30 to #33 are related to the proposed merger between Air Canada and Air Transat. Focus exclusively on our "At-Home Readings": Air Canada and Transat AT Inc. (Air Transat) proposed to merge and the Competition Bureau (Bureau) subsequently conducted its investigation. Which of the following is CORRECT about this investigation? a. The Bureau did not conduct any efficiency analysis that may arise from this proposed merger. b. The Bureau found that the merger is likely to lead to a monopoly in 22 non-stop routes to-and-from Canada, Europe and various locations because Air Canada and Air Transat are the only two carriers. Substantial lessening in competition is also likely in 61 other routes. c. The Bureau found that substantial entry barriers exist in the affected routes, such as access to airport facilities in Canada and various European locations, as well as the ability of the potential new entrant t secure hotel offerings in Air Transat's sun destinations. d. All of the answers above are correct. Which of the following is CORRECT about this investigation? a. The Bureau concluded that Air Transat was facing financial failure and hence the merger was essentia for its survival prior to February 2020 (COVID-19). b. The Bureau concluded that if Air Canada were to merge with Air Transat, the merged firm, together witl its transatlantic joint ventures (A++ venture), will likely operate more than 90% of the flight capacity between Canada and Europe. c. The Bureau found that the proposed merger is unlikely to substantially lessen competition in the domestic, within-Canada, flight market. d. All of the answers above are correct. The Canadian federal government approved the proposed merger in spite of the concerns expressed by the Bureau. Which of the following is CORRECT? a. The Transport Minister approved the merger without requiring a divesture remedy. b. The federal government ensured that the Air Transat brand will remain and its headquarter and all aircraft maintenance of the merged airline to remain in Quebec. c. WestJet, Flair and Sunwing have expressed their opposition to this merger because they would be competing against a much more powerful rival. d. All of the answers above are correct. The European Commission (EC) expressed concerns over this proposed merger because it could substantially lessen competition in 33 origin-and-destination (OAD) pairs between Canada and the European Economic Area (EEA). Which of the following is CORRECT? a. In the 33 OAD pairs, Air Canada and Air Transat have been engaged in head-to-head competition and the EEA carriers have been competing in a small subset of these routes. b. The EC found that WestJet is likely to exert much more competition pressure on the 33 OAD pairs but it may take WestJet at least five years to accomplish this goal. c. The EC has insufficiently considered the challenges COVID-19 has imposed on the air travel industry because after the termination of this merger, Air Transat was unable to secure any short-term or longterm financing from equity firms and from the Canadian government. d. All of the answers above are correct