Two companies in town A apply for a merger. The current competitive price is $100, which is also the cost per unit for all suppliers in this industry. There is one supplier located in town B, one in town C and one in town D. Town B is 40 kilometres, town C is 70 kilometres and town D is 140 kilometres away from town A. Transportation cost of one unit of the product is $0.1 per kilometre.
(a) The competition authority applies the 5%-SSNIP test to define the market for this merger application. Explain - in not more than 80 words - the SSNIP test. Which towns should be included in the market for the merger assessment?
(b) How would the result change if the CA uses a 10%-SSNIP test? Explain briefly - in not more than 60 words - the difference.
(c) Instead of a merger, now consider a monopolisation case with a dominant firm located in town A. All other assumptions are as before. Assume the dominant firm charged a price above cost equal to $105. What is the relevant market for this antitrust case when a 5%-SSNIP test is applied? Explain briefly - in not more than 80 words - the "Cellophane Fallacy" in this context.