Unformatted text preview: icient if entry is easy, or strong buyers
If share below 40%, firm may not have market
power. If share is above 50% firm can be dominant EC is not so explicit, but behaves similarly.
44 Capacity and Potential entry If
If firm tries to increase prices, rivals may
increase capacity aggressive response limits
market Easy, potential entry also limits market power high fix cost and sunk cost are an obstacle to entry History of industry may also be informative: if entrants
were always aggressively fought by incumbents, entry
may not be likely (reputation effect)
45 Buyer power concentration of the buyers matters market power is generally larger, the smaller and
dispersed buyers are
However: Few buyers make entry less attractive, as it
may be difficult to break long-term seller-buyer
relationships Even if entrant is more efficient, buyers may not
coordinate and winning a few buyers may not be
attractive enough for entry
Empirical result: buyer concentration affects
market power of sellers negatively!
46 Merger Case:
Nestlé / Perrier 47
47 Intro Merger has been challenged by EC, as it would give rise
to joint dominance
Mineral Water industry
1991: IFINT (Italian company owned by Agnelli family)
launched bid to gain control over Perrier.
Counter offer by Nestlé (Swiss Multinational) Nestlé won takeover battle Nestlé already has an agreement with BSN (both in mineral
Under terms of agreement, they would have sold the Volvic
source of Perrier to BSN.
source Merger was cleared subject to certain merger remedies.
48 Definition of relevant product market Does
Does mineral water belong to same
market as softdrinks?
EC: water has image of pure, natural product;
associated with healthy living, satifies basic
needs. Soft drinks do not have such
characteristics, consumed in more occasional
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- Spring '13
- Economics, HHI