1. Read Section 4 of the Guidelines and look at Example 5. Does the answer to this example change if the marginal costs of A and B are $90? Use a 5% SSNIP.
2. Again, look at Example 5. Does the answer change if the marginal costs of A and B are both $1? Use a 5% SSNIP.
3. Suppose that firms 1 and 2 sell widgets and are planning to merge. They each charge $100 per widget and each has a marginal cost of $80 per widget.
After the merger, each firm's marginal cost goes down by 20%. The diversion ratio going from firm 1 to firm 2 is .3 and the diversion ratio going from Firm 2 to firm 1 is .35.
a. Read Section 10 of the Guidelines, What has to be true for the 20% cost reduction to be a cognizable efficiency?
b. Assuming that the cost reductions are cognizable, calculate the UPPI for both prices.
4. The premise of market definition is that product A and product B are in the same market if they are substitutable enough. How does the Hypothetical Monopolist Test relate to substitutability?