Question: In 1993 Mattel proposed acquiring Fisher-Price for $1.2 billion. In the toy industry, Mattel is a major player with 11 percent of the market. Fisher-Price has 4 percent. The other two large firms are Tyco, with a 5 percent share, and Hasbro, with a 15 percent share. In the infant/preschool toy market, Mattel has an 8 percent share and Fisher-Price has a 27 percent share, the largest. The other two large firms are Hasbro, with a 25 percent share, and Rubbermaid, with a 12 percent share.

a) What are the approximate Herfindahl and four-firm concentration ratios for these firms in each industry?

b) If you were Mattel’s economist, which industry definition would you suggest using in court if you were challenged by the government? Why?

c) Give an argument why the merger might decrease competition.

d) Given an argument why the merger might increase competition.