sunk note note even if market size increases one

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Unformatted text preview: rm dominance Demand variables Low Low elasticity to price, which could ease increasing prices profitably increasing Buyer power: 10 largest buyers of bottled Buyer mineral water account for 70% of total sales of Nestlé, Perrier, and BSN. First First 4 have 50%: Intermarché, Leclerc, Carrefour, Promodes Promodes No single buyer has more than 15%, though 58 58 Single firm dominance Consumers Consumers „loyal“ to a brand. Retailers would incur losses if they stop to supply a certain brand (also sales of other goods, as people would go to other supermarkets). other Interviews: Merger would diminish bargaining Interviews: power with respect to both Nestlé and Perrier. power „pecuniary“ economies of scope: range of waters pecuniary“ they sell would be broader discounts are given on volume of purchases on all brands of water shift of bargaining power from buyers to sellers. shift bargaining power of buyers would not limit market power of sellers significantly. market 59 59 Single firm dominance Efficiency Unlikely Unlikely gains? (Not addressed by EC!!!) that substantial cost savings can occur brand brand must be bottled at the source and marketed under its name no scope economies regulation does not allow to concentrate production regulation no scale economies No Research and Development involved no No synergies synergies 60 60 Joint dominance Nestlé/Perrier and BSN may jointly raise prices. high concentration no buyer power no potential entrants short information lags, frequent transactions market transparency is high (list prices and quantity market rebates are published, same customers, firms report sales to the government and others receive this information) information) prices evolved similarly historically parallel prices behavior. behavior. symmetry of firms would be high transfer of Volvic symmetry makes firms symmetric collusion likely. 61 61 Conclusion EC EC allowed merger with Perrier and transfer of Volvic to BSN Volvic However, However, correctly found that joint dominance would be created be Remedies: Allowed only under condition that Nestlé sells Vichy, Thonon, Pierval, St. Yorre to third party. capacity capacity of 20% in total of Nestlé/Perrier and BSN together – even though individual market shares of these brands not very high. very However, However, our analysis reveals that merger should have been denied as tacit collusion is likely after some time due to industry characteristics characteristics 62 62 Conclusion Also: Also: Fact that Nestlé and BSN directly reacted through common agreement when an outsider (IFINT) tried to enter an clear signal of coordination between them Incumbents Incumbents were already tacitly colluding and entry would have broken this stability and The transfer of Volvic to BSN only The worsened matters due to increased symmetry. symmetry. 63 63...
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This note was uploaded on 01/22/2014 for the course ECON D0T32A taught by Professor Czarnitzkidirk during the Spring '13 term at Katholieke Universiteit Leuven.

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