Please refer to Case Study 2 and answer the following questions. Proposed Merger

Question

Please refer to Case Study 2 and answer the following questions.

Proposed Merger Between Heinz and Beech-Nut Scrutinized

Case Study 2 link : http://faculty.lebow.drexel.edu/HammoudehS/Managerial/Heinz_case.pdf

a. Who are the competitors in the jarred baby food market? What market share do they have? Is this industry concentrated?

b. How do Heinz and Beech-Nut compete with one another?

c. What efficiencies are likely to be gained by Heinz and Beech-Nut through the merger? Is a merger necessary to develop these efficiencies?

d. How could the merger be harmful to consumers?

Explanation / Answer

1.Who are the competitors in the jarred baby food market? What market share do they
have? Is this industry concentrated, explain why? What would be the HHI after the
merger?

The competitors in the jarred baby food market are Gerber Products Company, Heinz, and Beech Nut, with market shares of 65%, 17.4% and 15.4% respectively.

Yes this is a highly concentrated industry, with only three firms accounting for 97.8% of the total market share. Even out of these three firms, only one firm itself accounts for almost two-thirds of the total market share. It is case of oligopoly, leadership model. Also the pre-merger HHI index is at a high of 4775, which is indicative of a highly concentrated industry. After merger the HHI would become 5300.84.

2. Are the barriers to entry high or low for this market? What are they?

The barriers to entry are high for this market. They are patent of the exact formula for making baby food, and the high cost of investment involved in research for developing the exact baby food required for kids.

3. What efficiencies are likely to be gained by Heinz and Beech-Nut through the
merger? Is a merger necessary to develop these efficiencies?

The efficiencies likely to be gained by Heinz and Beech-Nut through the merger are increased firm

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