Text 1
When companies in the same industry propose merging with one another, they often claim
that the merger will benefit consumers by increasing efficiency and therefore lowering
prices. Economist Ying Fan investigated this notion in the context of the United States
newspaper market. She modeled a hypothetical merger of Minneapolis-area newspapers
and found that subscription prices would rise following a merger.
Text 2
Economists Dario Focarelli and Fabio Panetta have argued that research on the effect of
mergers on prices has focused excessively on short-term effects, which tend to be adverse
for consumers. Using the case of consumer banking in Italy, they show that over the long
term (several years, in their study), the efficiency gains realized by merged companies do
result in economic benefits for consumers.
5 Mark for Review
Based on the texts, how would Focarelli and Panetta (Text 2) most likely respond to Fan's
findings (Text 1)?
A They would argue that over the long term the expenses incurred by the merged
newspaper company will also increase.
B They would recommend that Fan compare the near-term effect of a merger on
subscription prices in the Minneapolis area with the effect of a merger in
another newspaper market.
C They would encourage Fan to investigate whether the projected effect on
subscription prices persists over an extended period.
D They would claim that mergers have a different effect on consumer prices in
the newspaper industry than in most other industries.
