Question

Suppose you are hired to advise the Adamantium Corporation of Alabama (ACA) on a potential legal action brought by the federal government. ACA mines and sells adamantium, a major input in superhero exoskeletons. ACA is attempting to acquire the Unobtainium Corporation of Georgia (UCG), a competitor. While ACA focuses on adamantium, and controls 70% market share, it is also a player in the unobtainium market. UCG likewise mainly focuses on unobtainium, but also has 10% market share in the adamantium market. 10 other firms have 2 percent market share each in Adamantium. Both adamantium and unobtainium are mined substances, found deep below the ground in Azerbaijan, Djibouti, Madagascar, and the Marianas Trench.

Evaluate the potential aspects for legal trouble from an antitrust perspective. What laws might be implicated here? What standards will be used to assess their market power? What is the market structure in the market for adamantium (use a graph)? What is the likely outcome? Suppose they are found to be an illegal monopolist. How would we go about determining the appropriate sanction?

Answer 1

Well firstly the bove market structure post acquisition denotes "Monopolistic competition" where oje firm controls major market share and other firms control smaller pie of market with similar products but differentiation in quality.

Sijce the acquisition aims to dethrottle the market by creating monopolization of 80%market share it can breach US Anti Trust laws of Sherman Act where attempt to monopolize market is illegal since the merger shall create significant market power of above 75% and hence the deal stands to get rejected for merger or acquisition.

The only arguments the company can fight for is to reduce market share before merger and attempt to comply within limits of sector to get an approval of acquisition with an attempt to stabilise the market and reduce prices and increase social welfare for consumers.