Should a merger be approved in US ice cream market?
Context for Use
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%
Total store-bought ice cream market
Blue Bell 6%
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
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 https://www.ftc.gov/enforcement/cases-proceedings/151-0065/staplesoffice-depot-matter 'FTC ruling'