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Econ 461 quiz1 - On July 7 2000 the Federal Trade...

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On July 7, 2000 the Federal Trade Commission, better known as the FTC, filed a preliminary injunction to stop the merger of two baby food companies seeking to merge, Heinz and Beech-Nut. The FTC, which governs the transactions among companies in the hope to protect consumers from anticompetitive behavior, believed that this merger would result in an anticompetitive market for the baby food industry. In late August and early September the federal district court heard the case. The plaintiff in this case, the FTC, was interested in an injunction on this merger because they believed the merger would be anticompetitive. In the baby food market there are only three companies with any significant market share. These companies are Heinz, Beech-Nut, and Gerber. Gerber has about a 65% share of the market, with the others roughly splitting the rest of the market. Gerber is thought to have market power in the premerger market structure. Supermarkets almost never stock all three companies products on their shelves. Supermarkets usually only stock two or sometimes even one brand in some. Almost all stores stock Gerber, so the competition for shelf space is primarily between Heinz and Beech-Nut. Market entry is also difficult. Gerber and Beech-Nut are thought to be the premium brand names, while Heinz is thought of as the value brand. The FTC believes that the merger will result in tacit collusion between Gerber and the new post-merger company.
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The defendants in this case, Heinz and Beech-Nut, were accused of an anticompetitive transaction that would lower wholesale competition and competition between baby food suppliers. The merged company planned on using Heinz’s manufacturing plant, which was much more efficient than Beech-Nut’s manufacturing system. The Heinz plant was not operating at 100% and could easily produce all the food for the new company at this plant. This was thought to cut Beech- Nut’s total production variable costs by 15 percent. The new company
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