Should a merger be approved in US ice cream market?

Mark Maier, Glendale Community College,
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Given data on the US ice cream market (for premium and all store-bought ice cream) teams evaluate a proposed merger between Nestle and Dreyers.

Context for Use

Intended for a Principles of Microeconomics course. Students should be familiar with the concepts of economies of scale, collusion in an oligopoly market, and measures of competitiveness such as the HHI.

Student teams will require 20 - 30 minutes to calculate the relevant HHIs and to construct arguments in favor or against the merger.


Students use data on market shares to evaluate a proposed merger in the U.S. ice cream industry (between Nestle and Dreyers.) The evaluation requires application of U.S. Department of Justice guidelines and theories of economies of scale and collusion in oligopoly industries.

Expected Student Learning Outcomes

Students will be able to calculate an HHI, determining the appropriate market. Students will be able to use theories of economies of scale and collusion to make arguments about corporate mergers.

Information Given to Students

As economists working for the U.S. Federal Trade Commission what would you recommend as the ruling for a proposed merger between Nestle and Dreyers?
Your decision will include reference to the data for ice cream market shares. Note that data are available for the premium ice cream market (product with a high fat content) and the more inclusive all store-bought ice cream market. Also, note that common brand names for ice cream—Breyers, Ben&Jerry's and Haagen-Daz—are manufactured by corporates with other names. Finally, you will want to use your economic understanding of economies of scale and possible collusion in oligopoly markets in making your recommendation.

A) The merger should be permitted with no additional recommendations.
B) The merger should not be permitted at all.
C) The merger should be permitted with minor limitations (specify the limitations).
D) The merger should be permitted with major limitation (specify the limitations).

Nestle proposed to merge its U.S. ice cream business with Dreyers' ice cream.

Current market shares are:

Premium (high fat) ice cream market
Unilever (makes Breyers and Ben&Jerry's) 41%
Nestles (makes Haagen-Dazs) 37%
Dreyers 19%
Others 3%

Total store-bought ice cream market
Unilever 21%
Dreyers 18%
Blue Bell 6%
Nestle 4%
Wells 3%
Armour 3%
Other brands 45%

Ice cream market shares (Microsoft Word 2007 (.docx) 12kB Jan21 18)
Ice cream merger recommendation (Microsoft Word 2007 (.docx) 13kB Jan21 18)

Teaching Notes and Tips

This is a real life case. The decision should not be shown to students in advance NY Times article on the decision Although it allowed the merger with relatively minor conditions, this was not necessarily a correct or the only possible outcome. There were strong arguments that the merger would cause undesirable concentration in the premium market. On the other side, competition was continued in the total store-bought market. Identifying the relevant market is a major point of contention in anti-trust suits. The narrower the relevant market, the greater the concern about concentration. Determination of the relevant market can be determined by cross-price elasticity of demand measures, data not available in this case.


After hearing all the groups' arguments, students could write an individual essay on the case. Student learning might be best enhanced by asking them to summarize the strongest arguments on both sides in the case.

Students could examine other antitrust cases in which the market size was debated, for example Office Depot and Staples See the 'FTC ruling'

References and Resources